Chapter 7-The Canadian Banking System and Virtual Credit Cards

                Recently, I read an article in the Financial Post, discussing the introduction of virtual credit cards. Visa, the world’s largest credit card company, announced that they are going to be launching a “digital wallet” that is expected to be broadly accepted. Mike Bradley, head of products for Visa Canada, was not able to provide the public with a specific date for the launch of this new product, but said it would be sometime in the fall of 2011. The way this new digital card works, is that users will save their banking information so that when the time comes and the user wants to make an online purchase, all they have to do is enter their email address and password. This is convenient to users because they will never again have to enter any billing or shipping information when shopping online.

                The textbook Working with Economics discusses the different categories in which individual demand for money can be divided into. 'Transactions' is one of these categories, and it concludes that the amount of money held for transaction purposes depends on the level of income of an individual. This means that people are often limited to how much they can spend on a day-to-day basis. However, the textbook also mentions the function of a credit card. Credit cards lend out money to people, allowing them to spend and pay it back afterwards. This factor allows people to spend out of their level of income.

                The textbook mentions that a credit card requires authorization in order for to be used. This means that it must be determined that the person’s credit limit has not been overextended, and also that they are capable of paying back loans. Since the Bank of Canada is constantly battling people who put themselves in debt, I think that Visa is going to have to really think about the consequences of giving people easy access to loaned money. Since this new digital wallet will make it easier for people to make online purchases, people will spend more and possibly even get into a lot of debt by simply paying the minimum charge on their visa bills. Although spending is good for our economy, spending money that doesn’t exist in people’s wallets isn’t.

Link: http://www.financialpost.com/news/Visa+moves+virtual+credit+cards/4768237/story.html

               

Digital Wallet Questions

How long do you think it’s going to take to get to all virtual cards? How many years?

I think it is going to take about 20-30 years to get to all virtual cards.

Why?

The reason I think this is because us younger people are willing to put aside wallets, cards and cash,
while the baby boomer generation still wants to use those forms of payment. This article also mentions
how the amount of cash people carry on average has been falling continuously in the past 3 years.
Therefore we can expect to see the average amount of cash people carrying around drop even more,
and maybe even disappear completely.

Who will not be on board with this new virtual wallet?

I think that the baby boomers will not be on board with this new virtual wallet. Baby boomers have
grown used to physical wallets with cards and cash, and I don’t think they would feel comfortable having
to throw that all away. As well, I think they would be very skeptical to how safe this new virtual wallet
will really be.

What companies are going to be affected negatively by this? Name 3.

Three industries that are going to be affected negatively by this are; leather industry (who make the
wallets), the mailing industry (people won’t have to mail cheques, etc.), and the retail industry (make
wallets).

Who is going to make money from this? Name 3.

Three industries that are going to make money from this are; the electronic industry, the mobile/cell phone
Industry, and the banking industry.

The Great Depressions vs. The Current Recession

1. How did the Great Depression start?
The Great Depression began on October 29, 1929 in the United States due to the sudden crash of a stock market. Although it generated from this single country, it quickly spread around the world affecting many countries and their economies. Canada was especially affected since the United States was Canada's biggest trading partner. Once the United State's economy slowed down, so did Canada's. The Great Depression caused the governments to lay off jobs, and increase the cost of living by about 30 percent. The government did this by implementing all sorts of new taxes.

2. How did the current recession start?
The current recession started at the end of the year 2007. The Americans are at fault for this because they lent out too much money to people who were not liable to pay it back. This recession has had an enormous impact on our economy. There have been dramatic reductions in housing markets, an increase in the unemployment rate, as well as an increase in prices for manufactured products and oil.

3. How did the government take part following the event? Were/are they successful attempts?
The Canadian government took charge even though they were unprepared by creating various different social programs. As well, the government borrowed money from abroad while they could until the lenders began to lessen as the depression deepened. In my opinion, i think that the start of social programs for people in need is continueing to work. This was, and still is a very successful attempt. As well, the government also took part in the recessions by implementing new taxes which in my opinion has helped the citizens who are using all the social programs funded by the taxes. The government also layed off jobs and cut spending on health and education in order to help fund the social programs.

4. What factors are present now that were not present during the Great Depression?
Online banking and other online resources are two factors that are present in the current recession but were not present during the Great Depression. Now, people can keep track of how the economy is doing, and transfer money online. There are many online websites that provide information that can help people decide whether or not their money is safe in a bank and what they can do to help the economy. That was not possible during the Great Depression, so many people were "in the dark" meaning they were not able to be well aware of what was going on. This was negative because if people were not able to be well aware of the economy, they were not able to prepare themselves.

5. How did these two affect the United States' GDP?
Online banking and other online resources affected the United States and it's GDP by really bringing their economy down. The United States loaned a lot of money to people who were not liable to pay it back. The people who borrowed the money spent it recklessly, bringing themselves into debt and letting themselves think they can afford luxeries they really cannot. As soon as people started to realize they're bad spending habits, they panicked which caused them to start saving their money. This decreased the total consumer spending in the United States. Unemployment rates also went up. People lost their jobs, causing them to have less money to spend on luxury items. Instead of spending, they saved which brought the economy down. The decrease in spending and the decrease in income together have brought the United States' GDP and economy.

6. In your own words, tell me which one has made more of an impact on the world.
In my opinion, i think the Great Depression has made more of an impact on the world. The reason why i think this is because during the time period in which the Great Depression was present, people did not have access to any online resources. This led people to be very naive about what was going on in the economy, and so they were not prepared. As well, the Great Depression was one of the first depressions that a lot of economies went through. This economic depression prepared people for future recessions, so it had a big impact in that way.

Chapter 6-Aggregate Demand

   According to an article I read on Seeking Alpha, the earthquake and tsunamis that recently hit Japan are thought to bring great devastation to the country and its aggregate demand. The natural disasters have left Japan in need, with the citizens depending on the government to provide further fiscal and financial support. The article states that people will “debate about how they might do that given that you can only build so many highways and bridges” (paragraph 10). This article also reminds us of how rebuilding infrastructure is a no-brainer in this century, but with Japan’s aging population, government spending is going to have to lessen from personal health care in order to rebuild Japan. However, this might be difficult to do because of the high demand for health care.

   Aggregate demand is defined as the total demand for final goods and services in the economy at a given time and price level. Throughout this article, i discovered that Japan is experiencing a lot of negative things in term of its total aggregate demand. Distribution of income is a factor that is affecting and resulting from Japan's aggregate demand. The earthquake and tsunamis are going to rapidly affect all income earners; high, medium, and low. Therefore, people will be using their savings towards recovering, while people also lose their jobs. This is going to have a very negative impact on the aggregate demand and the total level of consumption in Japan is going to decrease. Disposable income is another factor of aggregate demand that is involved in the decrease of aggregate demand. People are going to spend a larger sum of their income on necessities and taxes, which will decrease all disposable income levels in Japan's economy.

   In my opinion, I think that Japan's government should step up and provide financial and fiscal support for all the citizens in need. What has happened is unfortunate and since people are losing so much, including jobs, the government is what they are all depending on. As well, i think that the government also needs aid in order to bring up its aggregate demand. All the other countries in the world should step up and lend a hand because we also depend on Japan for some of our imported goods.

Link: http://seekingalpha.com/article/258196-what-does-the-earthquake-mean-for-japan-s-fiscal-future

Chapter 5 - Unemployment Rates

   I recently read an article that stated the recent unemployment rates in Canada. As of February 4 2011, Statistics Canada claimed that the unemployment rate here in Canada rose to 7.8%. Although employment itself increased by 1.9% since January 2010, it is obvious that it is still nowhere near acceptable. In fact, according to this article, the only provinces whose employment increased are; Ontario, Alberta, Nova Scotia, Newfoundland and Labrador, Manitoba and Prince Edward Island. That means that British Columbia is in serious trouble-our employment hasn't even increased in about a year! That's a long time for people seriously looking for work.

  The Working with Economics textbook states that unemployment is only considered when it is done involuntarily. That means the unemployed people here in Canada did not lose their jobs because they were bad at their job. It doesn't even mean that they decided to quit their jobs out of choice. People here in Canada are most often unemployed because they have been layed off. There are many different types of unemployment. They are; demand-deficient unemployment, frictional unemployment, seasonal unemployment, structural unemployment, insurance-induced unemployment, and natural rate of unemployment.

  While there are all sorts of ways of getting fired, the result is still the same. I can understand if a company fires an individual because they went against company policy. However, if so many companies are laying off people simply because they cannot afford to pay them their wages, the government should take initiative. Ken Georgetti, president of the Canadian Labour Congress encourages the government to "use the March budget to help job seekers" (paragraph 4). I agree with Ken Georgetti's idea. Surely our Federal Government is able to do something to help its people find decent jobs.

Link: http://www.hrmguide.net/canada/jobmarket/canadian-unemployment.htm

Chapter 4- Direct Tax

    Recently, an article titled Canada-The Land That Scandal Forgot, analyzed quite a few of the recent tax scandals from around the world. The author of this article mentioned outrageous tax scandals of the United States, of Britain, of France, of Italy, of South Africa, as well as those of Mexico. While the author also mentioned a tax scandal of our very own country, Canada, it was concluded in this article that the Canadian tax scandal was nothing compared to those of the other countries. Our tax scandal was bland, and the Canadian citizens must 'glamorize [...] and perversely virtuous politics as colourful [which is] not an insuperable challenge' (paragraph 5).

    In the Working with Economics textbook, we are told that direct tax is 'one imposed on the individual who should pay the tax' (page 126). Within all of these scandals mentioned in this article, direct tax is a part of it. The governments of each country basically applied a direct tax to it's citizens and then used that money for other reasons other than benefits for their citizens. As well, some governments even applied legislative costs onto the tax payers. That way the government people wouldn't have to pay for their own messes, but the tax payers would-probably not even realizing where their money was going.

    In my opinion, i think that what the governments have been doing with the tax people's money is irresponsible and dishonest. To think of a government, the people supposedly in charge of our country, participating in such scandalous acts is quite worrisome. While the author of the article thinks we should be glad Canada hasn't had any scandals that could compare with that of other country's, i think we should become much more aware of where our tax money is going. If it can happen in other countries then surely, it can happen here.

Link: http://fullcomment.nationalpost.com/2010/08/14/conrad-black-canada-%E2%80%94-the-land-scandal-forgot/

Lorena Laurencelle

Chapter 3 - Natural Monopolies

     A recent article in the Economist, Social Media: Is Facebook really worth $50 Billion, commented on the idea of Facebook being a natural monopoly. While Myspace used to be the most popular social network on the internet, it has quickly been taken over by Facebook. With investors funding a total of $50 billion dollars into the development of Facebook itself, other social networks aren't as lucky. Twitter, for example, has only a 'mere fraction of Facebook's [...] which are said to have hit $2 billion last year' (paragraph 5). In spite of Facebook's popularity, it is no surprise that investors are 'falling over on another to get their hands on Facebook's shares' (paragraph 8).      

     Throughout chapter 3 in the Working with Economics textbook, we learn a lot about natural monopolies and how they work. First of all, a natural monopoly is defined in economics as an industry where the fixed cost of the capital goods is so high, it's not even profitable for a second firm to enter and compete. So basically, no other companies can barge into that industry selling the same product or service. The article also does a good job at explaining why Facebook should be considered a natural monopoly in the social networking industry. With Facebook currently being the number one go-to social network in cyberspace, all the other similiar websites should start thinking about shutting down as there really are no more reasons for them to stay.

     As a frequent Facebook user myself, i know what the benefits of using that website are. Additionally, with all the extra money being put into the website by investors, it's no surprise that Facebook will get even better in the near future. Perhaps people don't want to let go too quickly of all the other social network websites, but sooner or later, all people will crave for is Facebook. And rest assured, Facebook knows.

Link: http://www.economist.com/node/17853336?story_id=17853336