© 2003 McGraw-Hill Ryerson Limited The Canadian Economy The Canadian Economy in a Global Setting in a Global Setting Chapter 3 Chapter 3 © 2003 McGraw-Hill Ryerson Limited. 3 - 2 Laugher Curve Laugher Curve Frank: According to this economist, Ernie, it’s all very simple. In an endogenous business cycle where variable-span diffusion indices are neither rising nor falling and the capital-to-output ratio is low, then the interplay of liquidity preferences and reserve ratios escalates and interest rates rise, causing the yield ratio to drop on common stocks. © 2003 McGraw-Hill Ryerson Limited. 3 - 3 Laugher Curve Laugher Curve Ernie: I get it! In other words, when the economy goes higgledy-piggledy, the TSE goes blooey! © 2003 McGraw-Hill Ryerson Limited. 3 - 4 The Canadian Economy The Canadian Economy  Ultimately the Canadian economy’s strength is its people and its other resources.  The Canadian economy is far from perfect. © 2003 McGraw-Hill Ryerson Limited. 3 - 5 Diagram of a Market Diagram of a Market Economy Economy  The Canadian economy, as most market economies, is divided into three groups: business, households, and government. © 2003 McGraw-Hill Ryerson Limited. 3 - 6 Diagram of a Market Diagram of a Market Economy Economy  Households supply factors of production to business and are paid by business for doing so. The place where this takes place is called the factor market. © 2003 McGraw-Hill Ryerson Limited. 3 - 7 Diagram of a Market Diagram of a Market Economy Economy  Business produces goods and services and sells them to households and government. The place where this takes place is called the goods market. © 2003 McGraw-Hill Ryerson Limited. 3 - 8 Diagram of a Market Diagram of a Market Economy Economy  Government engages in the following activities:  It buys goods and services from business and buys labour services from households.  It provides services to both business and households. © 2003 McGraw-Hill Ryerson Limited. 3 - 9 Diagram of a Market Diagram of a Market Economy Economy  Government engages in the following activities:  It gives some of its tax revenues directly back to individuals (income redistribution).  It oversees the interaction of business and households in the goods and factor markets. © 2003 McGraw-Hill Ryerson Limited. 3 - 10 Diagram of a Market Diagram of a Market Economy, Economy, Fig. 3-1, p 56 Fig. 3-1, p 56 [...]... be allowed to operate freely © 2003 McGraw-Hill Ryerson Limited 3 - 33 The Global Setting International issues must be taken into account in just about any economic decision a country or a firm faces © 2003 McGraw-Hill Ryerson Limited 3 - 34 Global Corporations Corporations with substantial operations on both the production and sales sides in more than one country are called the global corporations... personal income and gain added expenses © 2003 McGraw-Hill Ryerson Limited 3 - 21 Corporation Disadvantages: Legal hassle to organize Possible double taxation of income Monitoring problems © 2003 McGraw-Hill Ryerson Limited 3 - 22 Finance and Business The dynamic stock market allows initial public offerings (IPOs) to quickly change value and to make their owners rich (or poor) E-commerce and the digital... corporations Global corporations are increasingly more important in international trade © 2003 McGraw-Hill Ryerson Limited 3 - 35 Global Corporations Global corporations offer great benefits for nations They create jobs, bring new ideas and new technologies to a country, and provide competition for domestic companies, keeping them on their toes © 2003 McGraw-Hill Ryerson Limited 3 - 36 Global Corporations Global. .. personal liability (even for partner's blunder) Limited ability to get funds © 2003 McGraw-Hill Ryerson Limited 3 - 19 Corporation Businesses that are treated as a person and are legally owned by their stockholders who are not liable for the actions of the corporate "person." © 2003 McGraw-Hill Ryerson Limited 3 - 20 Corporation Advantages: No personal liability Increasing ability to get funds Ability... year They spend their tax revenues on social services,administration, education, and roads © 2003 McGraw-Hill Ryerson Limited 3 - 29 Income and Expenditures of Provincial and Local Governments, Fig 3-2, p 63 © 2003 McGraw-Hill Ryerson Limited 3 - 30 Federal Government Income taxes make up 62 percent of the federal government’s revenue, while sales taxes make up about 20 percent The two largest categories... the appropriate costs have been subtracted © 2003 McGraw-Hill Ryerson Limited 3 - 15 Consumer Sovereignty and Business By channeling the desire to make a profit for the general good of society, the Canadian economic system allows the invisible hand to work © 2003 McGraw-Hill Ryerson Limited 3 - 16 Forms of Business There are three major types of businesses: sole proprietorships partnerships corporations... McGraw-Hill Ryerson Limited 3 - 17 Sole Proprietorship Businesses that have only one owner Advantages: Minimum bureaucratic hassle Direct control by owner Disadvantages: Limited ability to get funds Unlimited personal liability © 2003 McGraw-Hill Ryerson Limited 3 - 18 Partnership Businesses with two or more owners Advantages: Ability to share work and risks Relatively easy to form Disadvantages:... Households as Suppliers of Labour The largest source of household income is wages and salaries Households supply the labour with which businesses produce and government governs © 2003 McGraw-Hill Ryerson Limited 3 - 26 Government Two general roles of government are: An actor – collects money in taxes and spends that money on its projects, such as healthcare and education A referee – sets the rules that determine... 11 Business Business is the name given to private producing units in our society Businesses decide what to produce, how much to produce, and for whom to produce it © 2003 McGraw-Hill Ryerson Limited 3 - 12 Entrepreneurship and Business Entrepreneurship is the ability to organize and get something done It is an important part of business, and an important ingredient in the economy © 2003 McGraw-Hill... of spending are social services and debt charges © 2003 McGraw-Hill Ryerson Limited 3 - 31 Income and Expenditures of the Federal Government, Fig 3-3, p 64 © 2003 McGraw-Hill Ryerson Limited 3 - 32 Government as a Referee Government controls the interaction of households and business It sets the rules of interaction and acts as a referee, changing the rules when it sees fit It decides whether economic . McGraw-Hill Ryerson Limited The Canadian Economy The Canadian Economy in a Global Setting in a Global Setting Chapter 3 Chapter 3 © 2003 McGraw-Hill Ryerson Limited. 3 - 2 Laugher Curve Laugher. Canadian Economy The Canadian Economy  Ultimately the Canadian economy s strength is its people and its other resources.  The Canadian economy is far from perfect. © 2003 McGraw-Hill Ryerson. 5 Diagram of a Market Diagram of a Market Economy Economy  The Canadian economy, as most market economies, is divided into three groups: business, households, and government. © 2003 McGraw-Hill