BRIEF HISTORY IN THE CANADIAN ECONOMY

There are four economic eras of Canada:

1. The Great Depression and before
2. After the Great Depression to early 1980s
3. Early 1980s to 2007
4. The recession of 2008 – 2009 and beyond

The Great Depression and Before

 The Great Depression can be viewed as a shift to the left of the aggreaget demand curve
(Real GDP fell and price levels also fell.
 Large aggregate demand also drop.
o Grim business expectations cut investment, consumer spending fell, banks failed,
and world trade was severely restricted by high tariffs
o Aggregate supply also decreased but not as much as demand
 Before GD, macroeconomics policy was based on the laisse-faire philosophy of Adam
Smith.
o The Wealth of Nations  people allowed to pursue their self-interest in free
markets, resources would be guided as if by an “invisible hand” to produce the
most efficient and most valued level of aggregate output.
 The economy is “self-correcting”

The Age of Keynes: After the Great Depression to the Early 1980s
 1936: John Keynes published: The General Theory of Employment, Interest, and Money,.
 Said that aggregate demand was inherently unstable, because investment decisions were
often guided by the unpredictable business expectations.
 If businesses grew pessimistic about economy  invest less (reduce aggregate demand
output, and employment.
 He proposed that the government jolted the economy out of its depression by increasing
aggregate demands.
 He recommended an expansionary fiscal policy to help offset contractions. The
government could achieve this stimulus by:
o Increasing its own spending
o Indirectly cutting taxes to stimulate consumption and investment.
 Demand –side economics: because it focused on how changes in aggregate demand might
promote full employment.
o Argued that government stimulus could shock the economy out of its depression
 When investment returned to normal levels, the economy would start
growing by itself.
 During WWII, the increase in government spending, with no significant increase in tax
rate, created large federal deficits during the war.
 Stagflation: meaning a stagnation or contraction in the economy’s aggregate output and
inflation, or increase, in the economy’s price level.
 Misery Index: Unemployment + Inflation rate = The higher the number the more
miserable we are
 Because stagflation was on the supply side, no on the demand side, the demand-
management prescriptions of Keynes seemed ineffective. Increasing aggregate demand
might reduce unemployment but would worse inflation.
The early 1980s to 2007
A key idea behind supply-side economics: was the that the federal government by lowering tax
rates, would increase after-tax wages which would provide incentives ton increase the supply of
labour and other resources.
Resulting in increase in aggregate supply GDP and reducing the price level.

FINAL INFO
Real GDP per capita: The best measure of the average standard of living is the economy. Tells
us how much an economy produces on average per resident.
𝑡ℎ𝑒 𝑔𝑟𝑜𝑠𝑠 𝑑𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑝𝑟𝑜𝑑𝑢𝑐𝑡
𝑡ℎ𝑒 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑜𝑓 𝑡ℎ𝑒 𝑐𝑜𝑢𝑛𝑡𝑟𝑦
 It also sums the demands for Canadian goods and services of households, firms, gov’ts
and the rest of the world  related to the overall price level. (Negative)