Reference no: EM133441687

Assignment:

The global economy, and specifically Canada, has recently being experiencing historically high levels of inflation- not seen in forty years. Most Canadians are very used to an environment of both low inflation ( inmost consumer goods) and historically low interest rates. It has made borrowing money very appealing and created enormous levels of personal and corporate debt- used to finance the purchases of a wide range of assets, including residential real estate in the consumer sector and in the corporate sector the financial activity of stock buy-backs. This has been driving up the price of these asset classes for years. The Covid pandemic has created a health crisis and economic turmoil.

The Canadian government had moved debt finance spending to historic levels in order to create financial support for Canadians (CERB etc.) and to stimulate economic demand. At the same time the global economy has experienced supply shortages, due both to lock-downs in China's industrial/manufacturing sector and bottlenecks of shipping containers moving through ocean ports around the world. As a result, inflation has sky-rocketed far beyond the Bank of Canada inflation target range of 1%-3%. The war in the Ukraine has also resulted in huge increases in the price of natural gas and oil produced and normally exported to Europe. As a result, the Bank of Canada has begun raising interest rates in order to try and bring the inflation rate back down to target levels. Please consider the following when researching and developing your reports.

- Does anyone in our economy benefit from inflation? How/Why?

- Who is most negatively impacted by inflation?

- Do you think the Bank of Canada will be effective in bring the inflation rate back down to target levels? Why/Why not?

- When our Prime Minister was asked by a reporter: "Whether he would support altering the Bank of Canada's inflation-fighting mandate to allow for higher prices, as the U.S. has done, his response was: "When I think about the biggest, most important economic policy this government, if re-elected, would move forward, you'll forgive me if I don't think about monetary policy. You'll understand that I think about families."

- Do you think this is a reasonable response for a Prime Minister? Yes/No/ Why/Why not?