GDP and Growth in the Canadian Economy 2008-2011
Between 2008 and 2011, GDP for all industries and sectors in the Canadian economy increased from $1,068 billion to $1,266 billion. In each of the period, GDP growth has been positive with the exception of 2009 in which we saw a decline of GDP growth in the Canadian economy. The compound annual growth rate of GDP between 2008 and 2011 measured 2.6%. (Canada Government data, 2012)
Table 1.0
GDP growth rate | ||||
Year | 2008 | 2009 | 2010 | 2011 |
GDP growth rate | -1.5% | -2.8% | 3.2% | 2.50% |
Table 1.1
Employment growth rate
Employment growth rate | ||||
Year | 2008 | 2009 | 2010 | 2011 |
employment growth rate% | 8.3% | 6.5% | 9.3% | 11.30% |
Table 1.1
The inflation growth rate in Canadian Economy 2008-2011
Inflation growth rate | ||||
Year | 2008 | 2009 | 2010 | 2011 |
Inflation growth rate% | 2.5% | 10% | 5% | 2.0% |
Economic growth is normally calculated as a percentage growth or increase in Gross domestic Product of the country and the inflation is adjusted from the previous year. (Abel, eta al, 2005).The growth rates are also calculated for different sectors or industries within the economy over several years in order to come up with the trend. In Canada, the compound annual growth rate (CAGR) is used to determine the trend in the growth rate of real GDP and other economic growth indicators like full employment and inflation rates. There are three relationships which can be easily identified between export, import and GDP. They include; two way casual relationship between GDP and export, export led growth and lastly growth initiated export. . (Abel, eta al, 2005). In the two ways casual relationship, there is direct relationship between trade and growth. Acemogly, 2009 stated that any small increase in trade normally increases people’s income which stimulates growth in GDP. In the export led growth, the scholars argues that is only increase in the export which will facilitate economic growth of the country as increase in export increases production and they refutes the ideology of two way growth in which increase in GDP alone cannot facilitate growth in export. While in growth driven export, they argue that is only with increase in income and economic growth which can facilitate trade and employment. (Acemoglu, 2009).
The above three economic indicators in table 1.0, 1.1 and 1.2 shows a steady economic growth in Canada, the GDP growth rate moves steady from 2008 up to 2011 except in the year 2009 where there was drop in the growth by 1.8%. In the same year the inflation was high with employment low. Major industries laid off their workers to deal with increase cost of factors of production. After the 2009 recession and drop in GDP, there has been a steady growth in GDP and drop in inflation rate.
Has economy grows; there are costs which comes with it. For example, to improve the consumption and demand possibilities for tomorrow, we have to forego some consumption and supply today. In Canada there is high economic growth rate and high unemployment growth rate due to use of modern technology in the production. The business cycle is moving from recession to full employment. The maintenance of the economic growth requires more effort to be utilized in the production of goods and services and this can be done by putting more investment in technology and capital. This will only make us to produce goods for future consumption and not for today hence the demand of goods and services will be in excess because the supply has been reduced. This will cause disequilibrium of demand and supply. Another problem with sustaining high economic growth in Canada is environmental degradation associated with high technology production equipments and factories, though the effect of environment is not usually reflected on the GDP, employment or inflation. (Abel, eta al, 2005).
Fiscal policies
The total economy output, employment level and income are directly related to the aggregate demand; the government can use the fiscal policies to maintain economic growth. Private spending in most cases consists of investments by business men, and individual purchase of goods and services. On the other hand government raises income through imposing tax on the consumption, export and import and in turn they provide public services like education health care and roads. The main aim of fiscal policy is to maintain and manage demand growth in economy and this will maintain a growing labour force while maintaining a reasonable inflation level within the economy. (Acemoglu, 2009)
The government of Canada should use expansionary fiscal policies as this will majorly focus in reducing unemployment. Some of the policies here include reducing taxes on the goods more so on exports, by reducing taxes, the government will reduce the prices of commodities hence increases consumption which will in turn push the demand curve upwards. Another policy the government can use is increase government spending. (Abel, et al, 2005).
In curbing inflation rates the government through central bank should monitor and control interest rates, they should set high interest rates which will control the money supply in the economy. The Canadian government should also use the Keynesian approach of reducing the aggregate demand during the economic expansion as can be seen in the above statistical data above. To a chive reduction in aggregate demand, the combination of both fiscal and monetary policies will be used, they include; reduction in government spending, increased taxation and reduction of demand. (Abel, eta al, 2005).
Economic tool and mechanism of implementing the fiscal and monetary policies
The economic tools and mechanism which should be used in implementing these strategies should include; Central bank of Canada which should increase lending rates through charted bank in Canada. This will ensure low supply of money within the economy. The bank reserve ratio with central bank should also be raised. The national budget should be low to reduce government spending and fixed exchange rates. The government should be spent majorly on the basic needs like health and education. The wage and price control mechanism should be used to check on the income level. This includes price ceiling and price flooring through laws and legislatives. (Barro and Robert, 1997). The real purchasing power of citizens is usually eroded with inflation and the government needs to adjust this through government institutions like the pension benefits social security funds. The government should encourage export as this will multiplier effect in the gross domestic effect.
Reference
Abel, Andrew; Benamanke, Ben 2005 macroeconomics 5th ed. Pearson
Acemoglu, D., 2009. Introduction to modern economic growth
Barro, Robert J (1997), macroeconomics, Cambridge, mass
Canada economics and Statistics data departments, 2012, Gross Domestic Product by Industry