Question
Can you share your thoughts on the draft I made to learn something? The Bank of Canada's forecast on July 14 illustrates some pros and
Can you share your thoughts on the draft I made to learn something?
The Bank of Canada's forecast on July 14 illustrates some pros and cons of the aggregate demand and supply model. The recovery of the economy would shift the aggregate demand (AD) curve to the right since consumers are willing to spend more money, which is accumulated during Covid 19 pandemic, on goods and services. This would be an advantage for Canada's economy as an increase in AD would result in a higher level of GDP. Furthermore, the Bank of Canada's report shows that the Governing Council committed to keeping the policy interest rate at the effective lower bound to achieve a 2 percent inflation target. The low-interest rate positively affects investment spending and consumers' behaviors as they tend to purchase more when the interest rate is low. A new equilibrium would be established based on the increase in AD. Nevertheless, because the price level is pulled up, demand-pull inflation might happen as a result of this trend representing a positive GDP gap. Given that long-term inflation has not raised and kept around 2 percent, the central bank's report also points out that short-term inflation has risen and continued during 2021. However, at this point, the bank of Canada is willing to let this inflation happen to achieve a complete recovery (Carmichael). Moreover, a higher price level is likely to harm one of three primary goals, which is the stable price. Another economic goal needed to achieve a complete recovery is full employment. The monetary public report indicates that the employment rate is still below the pre-pandemic employment rate. Therefore, employment could be seen as a priority for the recovery and to partially offset the inflation. However, the erosion of labor skills should be taken into consideration due to long spells of unemployment; hence, the productiveness and effectiveness of labors may decline.
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