AFM 131 - Chap 4 Notes.docx

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Department
Accounting & Financial Management
Course
AFM 131
Professor
Robert Sproule
Semester
Fall

Description
AFM 131 – Chapter 4 Notes The Role of Government in Business: Government activities that affect business are: - Crown corporations, laws and regulations, taxation and financial policies, government expenditures, purchasing policies, and services Page 102 Figure 4.1 Government Involvement in the Economy: Canadian economic system is mixed; has some allocation of resources made by the market and others by the government. Federal Canadian government was given the power to “regulate trade and commerce” in 1867. Western provinces joining Confederation meant special efforts to unify Canada. Small population with a large population with no railway meant trading patterns in a North/South configuration. US developed faster with a larger population and economy which provided products either not made in Canada or no transportation method was available. 2 Issues set the tone for continuing + substantial involvement in developing Canadian economy: i. Canada developed National Policy to place high tariffs on imports from USA to protect CAD manufacturing with higher costs. ii. Consideration for a rail line to the West coast. Crown Corporations: A crown corporation is a company that is owned by the federal or provincial government. Crown corporations created for several reasons: i. Provide services that are not provided by businesses. (e.g: Air Canada) ii. Bail out a major industry in trouble. (e.g: Canadian National Railway) iii. Provide some special services that could not otherwise be available. (e.g: Bank of Canada) The Financial Role of Two Special Provincial Crown Corporations: Alberta Heritage Savings Trust Fund – - Established in 1970s when Albert economy propser from oil boom - 2008 Fund’s assets reached $14.5 billion - Makes investment decisions that will benefit Alberta Quebec’s Caisse de depot et placement du Quebec – - Established to handle funds collection by Quebec Pension Plan - 2008 Fund’s asset reached $220.4 billion - Handles government funds, guides economic development, makes decisions Role for the Government: Privatization – the process of governments selling Crown corporations Laws and Regulations: Power to make laws is based on the British North America Act in 1867, which created the Canadian Confederation and sets the legal ground rules for Canada. In 1982, the BNA Act became part of the new Constitution and was renamed the Constitution Act, 1867. Laws are derived from four sources: - Constitution - Precedents established by judges - Provincial and federal statutes - Federal and provincial administrative agencies Federal Government Responsibilities: Federal government is responsible for issues that affect Canadian citizens. Primary responsibility is to ensure and support the country’s economic performances. Page 106 for other responsibilities. Competition Bureau listens to business and consumer complaints and sometimes launches investigations to ensure fair competition. Industry Canada is the federal agency that administers a variety of laws affecting businesses and consumers. i. Competition Act to ensure that mergers of large corporations will not restrict competition and fair competition exists among businesses. Covers many laws from discriminatory pricing, price fixing, misleading advertising, and the refusal to deal with certain companies. See examples on page 107 Marketing Boards: Marketing boards are organizations that control the supply or pricing of certain agricultural products in Canada, and consequently trade. This supply management is designed to give stability to an important area of the economy that is normally volatile. Farmers are subject to conditions such as weather, disease, unstable prices, and changes in supply. Billions of dollars of agricultural products are exported annually, which as an impact on the Canadian economy. Six agencies set up to smooth out effects of the conditions. - Canadian Wheat Board, Canadian Dairy Commission, Canadian Egg marketing Agency, Chicken Farmers of Canada, the Canadian Turkey Marketing Agency, and the Canadian Broiler Hatching E
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