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Kristen Miller
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Yardeni Project
~ Canada ~

The period I chose to examine was 1990 to 1996, and during this period the GDP experienced a significant drop of about 5.5%. It began at the beginning of 1990 and then picked up in 1992 with a steady increase until 1995. In 1996 it picked back up in 1996 and has been steadily increasing ever since. At the same time the GDP began to fall in 1990 consumer expenditures did the same, then in 1992 as the GDP began to pick back up consumer expenditures rose as well. Considering the fact that consumption accounts for 2/3 of the GDP, the rise in GDP is not a coincidence. Capital spending is another component of the GDP that fluctuated a lot during the period between 1990 and 1996. If we look at Canada using Keynes approach this is the component of the GDP that more often than not determines the business cycle, it is safe to say that this is why Canada's GDP has experienced numerous ups and downs.

The chart showing the percent change in government spending seems to show a lot of volatility. It fluctuated at a steady rate of almost 4% between 1990 and 1992, but it was not until 1993 that government spending severely declined. I found this ironic because this was the time that Canada's GDP began to pick up again after the significant drop that occurred in 1990. This made me think of the video we saw on the Great Depression, and I remembered that the US economy began to recover only when Roosevelt stimulated government expenditures. In the case of Canada, back in 1993 it did not work this way. If we look at the role of the government according to Keynes, then the more active role a government takes should boost a country's economy and stimulate consumption, but when the Canadian government was spending more in 1990 and 1991 that is when the exact opposite occurred: consumer expenditures fell along with the GDP.

Looking at the chart tracking exports and imports I noticed that the change in the amount of goods Canada exported between 1990 and 1996 followed the same pattern as the change in the GDP during that time. As exports fell GDP fell, and as exports rose GDP rose, so I concluded that there is a direct relationship between the number of goods Canada exports and the strength of its economy. Which makes sense because if there is a steady demand for Canadian goods that means there is a large number of people working to produce those goods. As long as jobs are plentiful people will receive steady income, they will spend more which means more money will be put into the economy and the GDP will rise. Imports pretty much follow the same pattern but there was less fluctuation in the amount of Canada's imports from 1990 to 1996 than its exports. I think we see less volatility when it comes to imports because the leakages injections model tells us that as exports are consistently injected into the economy imports should be consistent as long as foreign economies are not experiencing any major problems or economic slowdowns.

Another reason Canada experienced a drop in its GDP during 1990 may have been due to the fact that interest rates were up at that time. Less people were spending because interest rates were up on loans so borrowing was down. There is an inverse relationship between GDP and interest rates so it's not surprising that high interest rates are indicative of an economic slowdown. The chart tracking the CPI also indicates Canada's economy declined throughout 1990 because average prices rose. When the economy began to recover and the GDP went up in 199 1, the CPI went down, and it continued to fall as the GDP continued to rise up until 1995. Currently, the CPI has only experienced minor fluctuations which means inflation rate is not a problem at this time.

When I looked at the chart tracking Canada's unemployment rate, there was one thing that did not make sense to me. There was a major increase in the unemployment rate in 1990 up until 1994 and even then it was still high. I didn't expect it to look like this considering the GDP rose steadily between 1991 and 1994. 1 would have expected the unemployment rate to decline but the chart shows it actually goes up during periods of economic growth. Usually the job market is a big influence on consumer confidence but consumers were spending more as the unemployment rate rose, so other factors must be taken into consideration. First, it is possible that the Canadian government was trying to ward off any chance of inflation and in its attempt to change the economy, the unemployment rate rose. Second, we don't know what type/types of unemployment took place during the period between 1990 and 1993. When I researched Canada on the Dismal Scientist's web site I found that Canada has a history of high unemployment, 6.9%. I also found that job creation in Canada depends heavily on the US economy, and the main sectors that are usually affected include manufacturing, telecommunications, and the automobile industry.

Overall, Canada's GDP growth remains at 3.2% and although economic expansion has slowed it remains healthy. Manufacturing industries seem to be Canada's biggest weakness but business, government, and retail services are doing well. Since Canada's economy is so closely connected with the US economy, rate cuts within the country as well as the US will keep the economy from declining too rapidly.

* Coach's italics, bold type, and underlining.

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