Canadian Economy
Contents
1.2 Agriculture and natural resources. 4
4.1 Canada price Level Index. 11
4.2 Measures put by the government to achieve stable prices. 12
Canadian Economy
Introduction
Canada is among the wealthiest nations in the world with a high economy as well as high standards of living. It is also the second-largest nation in relation to land in the world, and it has the tenth largest economy with a GDP of $1.6trillion. Even though not the whole population is equally well off, most people have well-paying jobs, thus the ability to live comfortably than most people in other countries. The service industry in Canada has dominated the economy, thus employing over three-quarters of its population. However, Canada’s overall economy is contributed by the upstream natural gas industry through taxes, jobs, and royalties paid to both provincial and federal governments. Recently, the country wants more people to there. The paper explores the economy of Canada over the last ten years.
As one of the richest nations, it has an abundance of natural resources with three main types of industries: service industry, natural resource, and manufacturing sectors. Most industries have moved to the nation due to the high number of educated people, thus plentiful affordable resources as well as skilled workers. Approximately three-quarters of Canada’s export s are to the United States, thus a continuous free-trade with its neighbor in the South, which contributes to its economic well-being (Kurosawa & Hashino 2017). In 2014, the GDP per capita was $56100, whereby 69.8% was contributed by service, 28.5% by industry, while agriculture contributed 1.7%. Canada’s oil reserve has been ranked as the second-largest as well as the leading natural minerals producer. Its main natural resources are gold, crude oil, aluminum, and nickel, also among the leading producer of natural minerals such as crude oil, gold, Aluminum and nickel with the second-largest oil reserves in the world.
1.1 Service
The Canadian service sector is the fastest growing in the economy. This is through the help of the highly developed infrastructure that has contributed to the expansion of telecommunication, utility, and transport services. Seventy-four percent of Canada’s workforce is in the service sector, whereby 80% of the skilled workers are employed in this sector. However, the service varies in different regions, with the banking sector dominating the economy of Central Canada and tourism in the western and southern regions (Giersch, 2019). The banking sector is, on the other hand, dominated by foreign and domestic banking firms.
1.2 Agriculture and natural resources
The most vital economic resource in Canada is petroleum, and its petroleum reserves have been ranked among the largest in the world. Other natural resources are iron, gold, and coal, which is also essential in the economy and has been ranked the fifth largest in the world. In 2016, fishing and hunting contributed $123M to the GDP (Halpern, 2019). Changes in agricultural land use affect services in the ecosystem than the use of urban land. Besides, small farms owned by families are being consolidated by large agricultural firms. Since 2010, farms producing over $100,000 annually have increased by 10 percent. Although there is a decline in the total area of land in use for agriculture, agriculture still contributes greatly to the GDP.
1.3 Manufacturing
Over the past decade, production in the industries has increased by almost 5 percent per year. The main sectors that have contributed to this growth are electronics, automotive, computers, and computer equipment, as well as aircraft equipment. The automotive sector is the largest employer in the industry sector, with big companies such as General Motors and Ford (Anastakis, 2017). However, some areas of this sector have continually declined over the past decade, while others have sustained their growth.
2. Production Output Performance Analysis
The Gross Domestic Product (GDP) is the measure of national output and income for the economy of a given nation. It is the total expenditure on all final products as well as services produced within the economy. It helps in determining how a country’s economy is in the business cycle. Therefore, growth in GDP translates to the economic growth of a nation. However, real GDP is the most accurate measure of economic growth while compared to nominal GDP (Binette, & Tchebotarev 2017). The value of goods and services consumed are reflected in Nominal GDP, while the value of goods and services produced is reflected in the Real GDP. Besides, real GDP helps in calculating annual DDP as it determines inflation. This GDP trend is essential in making financial decisions for the given economy (Hassan, 2017). Canada’s GDP represents approximately 1.44 percent of the world’s economy. Foreign trade contributes about 45 percent of Canada’s GDP, having the United States as its largest trade partner. Fifty-eight percent of its expenditure is on household consumption, making it the main component of GDP. Twenty-two percent of the GDP is for gross fixed capital while the remaining 19% on Government expenditure.
Figure 2.1. GDP per Capita
Figure 2.1 above elaborates on the GDP per capita for the last decade. Canada has been increasing by at least 1 percent, with an increase in GDP per capita. In 2015, the GDP dropped by 14.44 percent to $47,921 and $41,738 in 2016. GDP raised by 3 percent in 2017; in 2018, it was 1.9 percent, while in 2019, it was 1.8 percent.
Figure 2.2 Real GDP in mining.
Figure 2.2 above shows GDP growth in relation to mining. Mining being a significant component that contributes to Canada’s economic growth, its value is vital in determining the GDP growth of a given economy. In 2009, GDP dropped by 25% and rose by 21% in 2010. In 2011, the GDP grew by 7.5% but declined by 4% in 2012. For the next 3yrs, the GDP was increasing significantly and decreased by 0.4 in 2016. In 2017, it rose by 4% and 1.6% in 2018. Moreover, real GDP is vital to the government when making fiscal policies that might be applied to control inflation or to spur economic growth (Ram, 2016). Monetary policies are decisions made by the government on spending and taxes. For instance, for a government to promote economic growth, it increases its spending on goods and services, thus increasing the demand for goods and services. Additionally, GDP as a measure of the final goods and services can be used to compare and predict the production trend of an economy. A high GDP translates to more significant human progress as it means the creation of more valuable goods and services (Ascari, 2017). On the other hand, in the case when inflation is growing at a high rate, fiscal policy is used to slow the growth of the economy by raising taxes and reducing spending. In 2018. Inflation was 2.24% compared to the previous year. As a result, the Government increased prices of commodities such as tobacco through increased taxes. There are two types of government taxes; direct taxes are levied directly to a person’s or firm’s income, while indirect taxes are paid indirectly by consumers through higher taxes.
3. Labour Market analysis.
In 2009, during the recession, Canada’s unemployment rate raised 9 percent. By 2011, the unemployment rate had lowered to 7.7 percent. Since then, the unemployment rate had been declining in that in 2016, the unemployment rate was 6.99%, in 2017 at 6.33%, and in 2018 at 5.83%. However, since 2014, after the economy has been rated free, it has been stuck in the mostly free category (Brouillette et al., 2019). The rise of the GDP has mirrored this by 1.9 percent over the past five years. For the economy to be rated free, the government must reduce its spending and reform the labor laws for the creation of a more flexible labor market. Through immigration, industries have employed many foreigners as semi-skilled and skilled workers (Bowlus et al., 2016). These foreigners have an opportunity of applying for Canadian permanent residence allowing their families to live there.
Figure3.1 Unemployment Rate in Canada
Figure 3.1 above shows a decline in the level of unemployment. This has been achievable due to the increase in the production and service sector; thus, most Canadians are employed. The unemployment rate in Canada is at 4.6%, inflation at 1%, while the population living below the poverty line is 12.9%. Nevertheless, technology is the leading cause of such unemployment in Canada as it has replaced human labor significantly, unlike in the US. Unemployment is classified into; frictional, structural, and cyclical. Frictional unemployment occurs when one leaves his job before getting another one. It may be as a result of a change of location or voluntarily. Labour allocation may also be caused by a regional dimension in due changes in economic activities. This type of unemployment is vital as it enables one to move to jobs where they are more productive (Pan, 2018). Structural unemployment occurs mostly in cases where machinery or equipment has replaced workers. When the economy of Canada was in a recession, cyclical unemployment occurred, forcing workers to accept lower-level jobs. Cyclical unemployment occurs during the contraction period of a business (Fujita & Moscarini 2017). During this period, the demand for goods and services for the firm falls, forcing it to reduce the number of employers to cut costs. As a result of unemployment, the workers have less money to buy goods and services, thus lowering the demand further.
4. Price level Analysis
An increase in the price level of selected goods and services in an economy is measured by inflation. It is the general increase in the price level, whereby a given amount of money buys less than it did before (Jensen et al., 2018). It can be caused by an increase in production costs such as labor, wages, or raw materials, thus cost-push inflation. In 2018, Canada tariffs reduced imported goods supply, thus creating shortages and producers raise prices. It can also be caused by the rise in demand whereby customers are willing and able to pay more for a given product or service, also referred to demand-pull inflation. To curb this inflation, the government reduced its spending, as well as raising taxes and interest rates. The Consumer Price Index (CPI), on the other hand, is the price variation of goods and services (Parikh et al., 2019). It is calculated by determining price changes of particular goods and services within a given period.
Figure 4.1; Adjustment of $100 for inflation (2008- 2019)
As per figure 4.1, Canada has experienced an average inflation rate of 1.52 percent per year, which translates to a decreased value of a dollar between 2008 and 2020 (Matheson, 2019). In 2008 the inflation rate was 2.49 percent a higher rate than the average inflation rate per year. The value of the Canadian dollar has been decreasing over time in that the number of goods or services $100 could purchase in 2008 is equivalent to what $115 could purchase in 2017. Likewise, the same value in 2008 is equivalent to $118 in 2019.
Figure 4.2: Annual average change of CPI and the CPI while gasoline is excluded, 2008-2018.
According to fig. 4.2, the average CPI of all commodities differs significantly while gasoline is excluded. This explains why gasoline is a significant component in Canada Economy. The average annual of Canada’s CPI has risen by 1.9 percent over the past decade. However, since 2011, the increase in CPI in 2018 was the highest. In 2018, CPI increased by 2.3%, 1.6 in 2017, and 1.4 in 2016 with an increase in the cost of energy by 6.7 percent in 2018 from a 5.5 percent gain in 2017.
Figure 4.3 Consumer prices increase in all major components
Also, in 2018, prices rose annually for all the major elements contributing towards Canada’s economic growth with transportation with the highest raise of 4.7%. The CPI for gasoline rose by 12.6 percent in 2018 compared to its rise by 11.8percent in 2017. This rise was caused by the increase of global prices and exchange rates, thus higher prices at the pump. Similarly, the consumers paid more for fuel oil by 18.5 percent compared to the previous years. Also, the services index rose by 2.7 percent in 2018 due to the increased interest rate by the bank.
4.2 Measures put by the government to achieve stable prices.
Government spending and expenditure are the major components of the fiscal policies used to stabilize prices. Government spending is used in education, health, social security, to finance debts, and other mandatory spending required by the law. In Canada, the tax rates range from 15 percent to 33 percent for individuals. Canadians are taxed by both by the federal and provincial governments. Rather than the direct taxes on individual income, Canada applies other indirect taxes such as environmental taxes, fuel taxes, tobacco taxes, and insurance premium taxes (Dahlby & Milligan 2017). However, these taxes vary from different categories of indirect taxes. These taxes help in stabilizing prices in that the government will impose lower taxes for basic commodities and higher rates for other commodities.
5. Conclusion
Canada’s economy is very strong and highly stable. Canada’s competitive strengths lie in natural resources, location, and a diverse economy. Its primary strength is on natural resources as it has created jobs, thus the prosperity of its citizens. Petroleum is the most vital economic resource of the economy, with its reserves being ranked the third-largest in the World, thus increasing trade. Likewise, coal is also an essential natural resource, with its reserves being ranked the fifth largest in the world. Other minerals such as Potash and Iron Ore have contributed to its ability to make cars, computers, medical technology, and other equipment used by the defense forces. Also, its ability to access the primary sources of energy has enabled the economy to remain competitive from other nations. These sources of energy include gas and oil, biomass, nuclear, marine, coal, solar, and hydropower.
5.1 Distribution of employment in different sectors
Figure 5.1 above explains employment distribution in different sectors in the year 2017. Trade has dominated employment in Canada by over 80 percent. Its location has enabled trade with the United States, where most of Canada exports’ are directed.
Appendices
Figure 2.1 ………. GDP per Capita
Figure 2.2 ………. Real GDP in mining
Figure3.1 ……….. Unemployment Rate in Canada
Figure 4.1 ………. Adjustment of $100 for inflation (2008- 2019)
Figure 4.2 ………. The annual average change of CPI and the CPI while gasoline is excluded, 2008-2018.
Figure 4.3 ………. Consumer prices increase in all major components
Figure 5.1 ………. Distribution of employment in different sectors
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