Edmonton's Economy

This article is about how Edmonton is changing the way they spend money. One thing they’re doing is giving people a tax break and making smokers pay more for their cigarettes, which will be the highest any Canadian has to pay for cigarettes. The government is increasing spending on things like schools, roads and hospitals because they hope it may make up for the increase in inflation. A lot of the money is going to create new infrastructure (18.3 billion), new highways (4.6 billion), which will put money back into the economy because it will create jobs. Healthcare is also getting 12.2 billion to help Edmonton’s healthcare situation. The spending is caused by an increase in population and economic growth in Edmonton. 200 million is being spent on the museum, billions of dollars are being given to municipalities and all of this will have a multiplier effect on the economy. A multiplier effect means that by either putting money into the economy or taking money out of the economy, will cause other things to be effected. Also, Edmonton’s GDP has grown by 6.9%, but because of inflation, the RGDP has only grown by 3%.

The tax break will allow people to have more disposable income, which means consumption will increase, which in turn will help the economy increase. One problem is that the government expects the economy to slow down, which may cause people to expect prices to change and may cause people to spend less on the economy. 100,000 new people have entered Edmonton’s population, which will cause consumption to go up. The tax break will allow more people to buy consumer goods like computers, which means the owner will spend that money on other consumer goods and this cycle will keep happening. This cycle is called the expenditure multiplier because someone spending money on a consumer good will in turn cause someone else to spend money on a consumer good. The population of Edmonton is 2006 is about 1,000,000 people, if each person gets a tax break of $50, $50 million may be spent on consumer goods. Say 80% of the 50 dollars is spent by each person, the expenditure multiplier shows, 50,000,000 x 1/1-0.8 = 50,000,000 x 5 = 250,000,000 change in GDP. The tax multiplier may also be applied because $50,000,000 less will be revenue generated by the government. If the MPC is 0.8, the tax multiplier will be –(-50,000,000 x 0.8/1-0.8 = -(50,000,000 x 4 = $200,000,000 change in GDP.

I believe that Edmonton’s economy will slow down because I believe the oil industry will receive fewer revenues in the coming years. I think the GDP won’t grow 6.9% again because the economy will slow down. The government is doing the right thing by not spending too much to make sure they are never in the situation they were in before. The situation is where things like spending on healthcare and infrastructure in neglected because of low economic activity. I believe they are trying to make sure that never happens again.