Business Economics | Product and Factor Market

Business Economics
Students Name
Institution

COVID -19 Response 1
1.
The Canadian government has implemented a fiscal policy to counter the effects of
COVID-19. Specifically, the government has allocated 0.1 % of the country’s GDP to its health
care system. This is an increase to the health budgetary allocation hence an increased
expenditure. The increased budgetary allocation is meant to help detect, prevent and aid in the
management and treatment of COVID-19 outbreak.
Further, the government has allocated 4.6 % of the GDP to households. This is a form of
transfer payment. This is intended to help employees without sick leave and to act as an
employment insurance (International Monetary Fund, 2020). The transfer payment will increase
the disposable income of Canadians so that they can invest rather than save thus boosting the
Canadian gross domestic product in the long term.
Another notable form of fiscal policy is taxes. Under this new tax policy, Canadians
are subjected to GST tax credits. This tax system is aimed to increase the rate of disposable
income for the Canadian population. This is because tax credits and refunds increase the
disposable income for the population.
In addition to tax credits, the Canadian government has introduced a distinct indigenous
community support Fund. This is meant to ensure vulnerable Canadian have access to necessities
such as food shelter and clothing. With the current viral outbreak, vulnerable groups of people
are unlikely to food basic welfare necessities hence the Fund. The fund will boost the welfare of
these indigenous Canadian groups.

COVID -19 Response 2
Equally important, 3.7% of the Canadian gross domestic product has been allocated to
support businesses through income and sales tax deferrals. The impact of this tax deferrals is to
secure employment since the businesses will still be operational.

COVID -19 Response 3
2.
In an attempt to cushion its citizens, the Canadian Bank has offered mortgage
payment relief and flexible repayment arrangements for credit cards and other credit lines. The
Canadian government has pledged C$1.1.Billion to its health care system to contain the COVID-
19 outbreak. Further relief programs for businesses and vulnerable population has been catered
for by the Bank. Specifically, deferral on payments for small enterprises has been effected (Bank
of Canada, 2020).
Through transfer payments offered to the vulnerable Canadian population, the
disposable income of such vulnerable groups will be raised(Romer & Romer,2014).. Further, the
welfare of the vulnerable groups has increased so they will be able to purchase necessary goods
and services thus boosting economic activity. However, these transfer payments might contribute
to a budgetary deficit.
In addition to the repayment deferrals, the Bank of Canada has lowered its monetary
policy by lowering its interest rates. Whilst this move will encourage consumer spending,
investment due to low repayment rates, it might take long for repayment to happen due to the
economic uncertainties. Moreover, lower interest rates might lead to inflation which might ruin
the economy further.
Also, the Bank has created large scale asset purchase programs to boost liquidity in the
Canadian financial market. This is aimed at enabling its citizens to easily trade their bonds for
cash during such hard economic times.