Chapter 3 - Government and the Free Market

Article: Global economy healing but on government life-support http://www.theglobeandmail.com/report-on-business/global-economy-healing-but-on-government-life-support/article1436664/

Summary: The global economy is recovering, but is relying on government stimulus, historically low intrest rates and bailouts. The Canadian central banks kept interest rates at 0.25% as they said that increasing the rates could hinder the economic recovery. Also, in order for the U.S to sustain an economic rebound, companies would have to create more jobs for households to have an increase in income large enough to support a sustained increase in consumer spending. The only downside is that governments would have an even larger national debt.

Connections: Chapter 3 explains how governments play a role in the economy and how certain goods are better provided by the government while others are better provided by the free market. This article is showing how governments need to be involved in issues such as economic recovery. Without government support with bailouts and stimulus packages, the economy could plumet back into recession. For example, the Canadian government released its stimulus package called Canada's Economic Action Plan. This plan will pump almost $30 billion into the Canadian economy with funds going to things like infrastructure, reducing taxes, and housing construction. The U.S on the other hand spent $787 billion on their stimulus package.

Reflection: I agree that governments need to help stimulate their economies with stimulus packages and bailouts, but I also think they need to be careful in deciding how much money to spend. Spending too much could actually hurt the economy in the long run. The U.S is already over a trillion dollars in debt and the debt is growing by the second. For example, the government may have to raise taxes to get the money they used to stimulate the economy and to pay down the debt. This would in turn leave taxpayers less disposable income to buy goods and participate in the economy.