recognition high rates of inflation known as

recognition or impact lag, expansionary policies can
often lead to over stimulating the economy. According to economist Milton Friedman, the
Keynesian theory can only work if there is perfect foresight, otherwise, if the
policy is applied too late or in the wrong dose, it can become destabilizing,
leading to high rates of inflation known as stagflation (Bartlett, 2013). Stagflation
is an unusual situation because inflation does not usually occur when the
economy is weak. However, stagflation can occur when the government expands the money supply and monetary policies create credit at the same time that hey constrain supply
(Bartlett, 2013). In addition, the programs
that are most often put into effect, public work projects, are often slow in
building to a point where a substantial number of workers are needed, and even
then the jobs skills of the unemployed rarely match the needs of public work
contractors (Bartlett, 2013). This will result in jobs created by public work
projects, with no workers ready to be employed. In conclusion, not only can
fiscal policies increase supply-side unemployment but monetary policies can
result in stagflation, resulting in a negative effect on the economy.        

Government policies such as recent immigration
policies, the minimum wage increase and stabilization policies that are meant
to reduce unemployment, can have a negative or little effect on unemployment
and the economy in Canada. In regard to recent immigration policies, although
Canada is a country known to be accepting of immigrants, it can cause an
increase in unemployment. Although an increase in immigrants may seem like a
benefit to the economy, in reality, the impact lag of this decision, can result
in higher rates of unemployment. Similarly, the minimum wage increase, which is
thought of as a benefit to most employees, can actually bring an increase in
unemployment in low wage industries and youth employment. Having high wages
increases the likelihood of employee cut-offs due to the self-interest of
businesses. Finally, stabilization policies meant to reduce unemployment, can,
in reality, have little effect or cause damage to the economy. Expansionary
fiscal policies are not effective in solving supply-side unemployment while
monetary policies can lead to stagflation, which will have a negative impact on
the economy as a whole. Therefore, while the government may believe that these
policies will better the economy, in reality, the impact of these policies can
increase unemployment and negatively affect the economy.

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