Canada Will Try to Avoid Deficit: Harper Prime Minister Stephen Harper said ... “The Minister of Finance has been looking at a series of careful measures to try and preserve Canada’s balanced budget...

Canada Will Try to Avoid Deficit: Harper


Prime Minister Stephen Harper said ... “The Minister of Finance has been looking at a series of careful measures to try and preserve Canada’s balanced budget position. ... But if there’s a world-wide agreement we will engage in sufficient stimulus to do our part in carrying global economic demand.” He said the government has not yet decided if it would go into deficit spending. ... “We are talking to our American counterparts. On the one hand we can’t ignore what the Americans will do[;] on the other hand, we as the government of Canada have to ultimately undertake our own actions... in the best interests of the Canadian economy and the taxpayers. ... The world economy has difficult times ahead,” he said. “Canada has so far been sheltered from most of those but will not be sheltered entirely from those problems. ... There is a view that monetary policy alone will not be sufficient to take the global economy through this crisis. ...”

a. Explain how Canada could experience a budget deficit even in the absence of discretionary stimulus.

b. Is it possible for Canada to use fiscal stimulus and still avoid a budget deficit? Explain.

c. Explain the potential advantages and disadvantages of coordinating discretionary fiscal policy decisions with other countries.

d. What does Stephen Harper imply about his view of the appropriate roles of monetary policy and fiscal policy?