The effects consisted in public debt accumulation, which in turn led to increased risks in the country's interest rates.
And the chain of effects did not stop here. The situation continued with discouraged investments, especially where equipment and technology were concerned. This is a very important aspect, because of the fact that these factors directly influenced productivity.
In other words, without massive and continuous investments in equipment and technology, productivity cannot be improved. If productivity does not reach satisfactory levels at least, the general economic situation cannot improve. As a consequence, individual economic situation cannot be a satisfactory one either.
Even if matters seemed to be clear from this point-of-view, it took a while until Canada came to implement its current monetary policy that focuses on maintaining a small inflation rate. The country experienced different types of monetary policies, each of them having different impact on the country's economy.
It was not until 1988 that the Bank of Canada's Governor at the time realized that in order to diminish the negative impact on the country's economy the monetary policy has to consist in reducing the inflation level. The direct effect of reducing inflation consisted in achieving price stability.
Since that period, the country focused on implementing policies that were designed to reduce inflation and to maintain it at a low level. The measures that were taken during that period proved to be very efficient, given the fact that by 1992 Canada's inflation reached almost 2%.
Even so, the impact of the reduced inflation level was not a rapid one. The impact started to be noticeable after a slightly longer period of time because of the fact that the damage produced by high inflation rates was too strong to be counteracted on such a short period of time.
As a consequence, high interest rates were still maintained for a period of time, even if inflation had been reduced. But the government and the Bank of Canada were not the only agents involved in the country's economic recovery. Population played a very important role also.
The fact that the country's inflation was a low and predictable one...
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