1. Increasing National Output

As a result of the multiplier effect, small changes in investment spending can create much larger changes in total output. Given the current level of high unemployment in Canada, what can the government do to encourage investors to invest more? Which of the following should the Government do? Which do you think will be effective? Can you think of additional measures?

• Offer zero income tax to newly formed businesses for the next five years.
• Make borrowing from banks easier for businesses, especially newly established businesses.
• Provide full GST rebate for the first five years for the newly formed small businesses.
• Make it easier for immigrants to come to Canada under business class who have business background and who provides reliable evidence of setting up a new business upon arrival.

2)Fiscal Policy Options

Government can take advantage of the power of the multiplier and help reduce the unemployment rate by increasing Government Expenditures on goods and services or by reducing taxes. Between these two options that are available to the Government, which one is a better option? Consider some of these dimensions in your answer. What are the advantages and disadvantages of increasing expenditures versus reduction of taxes? Should the Government of Canada be selective in providing tax breaks to particular industries, sectors, or groups? Should the same strategy be used for tax reduction? Can you suggest any other ways that the Government can spend money to reduce the unemployment rate?