Question

In some countries there is a concern that the government will run large budget deficits and force the country’s central bank to “monetize the deficit” by purchasing government bonds and providing money to the government. The resulting increase in the money supply will then lead to high rates of inflation.

Briefly explain why this is not a concern in Canada.

Answer 1

Canada is one of the strongest economies in America. The country has ended its fiscal year 2018 -2019 with a budget deficit of only 10 billion dollars, which is $900 million less than the budgeted deficit. the unemployment rate currently in the country is at its lowest, since 1970. Business are running at full or around full capacity. The public debt of the country is also manageable. Therefore, it is highly unlikely that the government of Canada will run high levels of budget deficits which will lead to monetization of the deficit by central bank. The government has overachieved its budgeted deficit for fiscal year 2018 - 2019 and the same trend is expect to continue, therefore, budget deficit is not a matter of concern for Canada as of now.