External stability (1 Viewer)

[red802]

In the fiscal policy, what issues can i relate to external stability?

 

[gnrlies]

probably mainly the concepts of the twin deficit, crowding out, as well as any stimulatory effects on the economy which will lead to higher imports.

There is also sometimes an expectation that the budget is used to solve some problems such as capacity constraints (i.e. infrastructure) which limit our export potential.

 

[Riviet]

You could also relate external stability to inflation, in which an expansionary budget outcome like this one could put upward pressures on inflation, since money is being injected into the economy through the government's spending.

 

[red802]

would another issue related to external stability can be CAD as a % of GDP, since it had a increase from 6% to 6.25%,

 

[Riviet]

Yep, the CAD is a bit of a worry, since we're in the middle of the commodities boom, and yet our CAD has still worsened, even with high export prices such as in the mining sector. Who knows what will happen when the boom ends.

 

[gnrlies]

You could also relate external stability to inflation, in which an expansionary budget outcome like this one could put upward pressures on inflation, since money is being injected into the economy through the government's spending.

Only problem with that is that its not linking external stability to the budget.... Price stability is an internal stability objective.