Canada weathered the global financial crisis and recession better than many of its peers, principally as a result of the better policies and regulations already in place. Canada was in a much stronger position going into the recession thanks to its low and declining fiscal debt, budgetary surpluses, and low and well-anchored inflation targets. The design of government policy and the speed of the policy response can make a huge difference in preventing or mitigating the worst of a recession.
a. Explain the potential demand-side effects of “low and declining fiscal debt, budgetary surpluses.”
b. Explain the potential supply-side effect of “low and declining fiscal debt, budgetary surpluses.”
c. Draw a graph to illustrate the combined demand-side and supply-side effect of “low and declining fiscal debt, budgetary surpluses.”