I chose to track the Canadian economy for my report. In Dr. Yardeni's website Ilinked onto the World Factbook to research Canada's economy. This is an economy that
closely resembles that of the United States. Canada has experienced great growth since
World War II in many different service sectors. Despite all the positive information I
read, I decided to track two separate recessions in' Canada happening within the last
twenty years. The first one began in April 1981 and hit the trough in November 1982. /
The second time period I researched was the downfall starting march 1990 and
bottoming out in March of 1992. )
At Dr. Yardeni's website I got the graphs of the GDP and all the expenditures of the
GDP for Canada. I also printed out a graph of business, financial, and inflation indicators
to the GDP. These guided me along in my report and I was able to identify relationships
between the graphs.
During my first time period of 1981-1982 the real GDP dropped a
total of nearly 8%. This was the most significant recession in Canada's recent history.
Would I classify this as a depression? I would say no because while looking at the three
D's of a recession (Depth, Duration, Dispersion), I believe this one was lacking the
duration. The economy was actually only in a downfall for less than a year and a half.
Throughout this recession, the consumer expenditures dropped in proportion to the
whole GDP, there was about a 6% decrease. This would make sense because the C
part of the GDP = AE = C+I+G+(X-M) equation is about two-thirds the aggregate
expenditures. The decrease of capital spending was exaggerated during thts recession.
A 35% drop in capital investments was recorded. People were just not looking to put
their money into long-term investments. For example in a common business, they were
not looking to add new buildings, but more just to purchase the products that were of
necessity to running the business in the present time. Government spending was the
only part of the GDP expenditures that didn't go into a straight plummet. Looking at the
percentages there was actually a.4% increase in government expenditures. There was
great drop in the percentage of imports, while the exports decreased also, but not as
drastically. I got the graph for the capacity utilization for Canada's manufacturing. At the
beginning of this period, there was 83% utilization. At the trough of this recession the
utilization had dropped to 66%. This shows that Canada was not producing to their full
potential. On the production possibilities curve they would have been way beneath the
curve, which results in lost output and the GDP drops.
A financial factor was the interest rate. The interest rate rose during the beginning part
of this recession, but then dropped in the second half of the recession. Still the interest
rate was at a whopping I I% coming down from nearly 18% in 1981. The lenders were
more willing to lend, but the borrowers were less willing to borrow. This affected
consumer confidence, and the peoples' overall attitude toward spending their money
was changed for the worse. The 1981-1982 recession was a tough time for Canadian
people, businesses, and government. This is shown by the percentage decreases in
many of the different expenditures.
The second recession I looked at was during the time period of 1988 -1991, but I am
focusing my research on 1990 and the trough in 1991. This recession was even worse
than that of 1982. This recession had greater duration and depth. Consumer expenditures dropped with great severity. Incomes dropped, wealth dropped, peoples' expectations of the future were also dropping. The capital spending was not affected as
much throughout this drop as it was in the earlier recession. This might be a sign that
people were just battling to get through the tough times but also at the same time they
saw a light at the end of the tunnel and wanted to prepare for that future. Government
spending was in an up and down stage, but looking back in history at the graph of
government expenditures it has always been very erratic. The trade balance dropped
about 20%, both exports and imports losing. During this recession, there was a slight
decrease in capacity utilization. Once again showing that when the nation is not
producing to its maximum they are constantly losing potential output. In this time period,
the percentage bottomed out at 73%. The consumer price index rose 3% during 1990
and 1991. This index tries to represent the "market basket" purchased monthly by the
average consumer. The CPI slightly overstates the cost of living, but it does give a good
look at what the citizens are dealing with everyday. In this case, the Canadians in the
early 90's were paying more and more for everyday things. Interest rates were not
greatly affected by this recession in fact they dropped a little bit, which also might relate
to why the capital spending rose during the last year of this recession. When the interest
rates are reasonably low, consumers will invest more money that they don't have, and
not have to worry about paying back great fees on their borrowed money. Overall, these
recessions have been harsh times for the Canadians but they are just part of the
business cycle. There will always be peaks and troughs, people just need to learn how
to survive the recessions and prosper during the booms of the economies they live in.
* Coach's italics, bold type, and underlining.