Analysis of Canadian Monetary Policy

AD1
AD
Q Q1
P
P
Q
a
X-Axis= Quantity
demanded.
Y-Axis= Price ofoods.
P- price, Q- Quantity.
Quantity of liquor demanded and supplied
Price of liquor
AS
b
P
1
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Case Analysis 1
Answer 1
Canadian economy is growing in a fast pace due to various reasons such as GDP,
increasing employment rate and expansionary fiscal policy. The economy of Canada
experienced a growth rate in its GDP by 3.7 percent, which in turn increased the household
expenditure by 1.1 percent. The county also experienced a growth in its exports by 0.2
percent in its fourth quarter. Other factors that is affects the growth rate of the Canada is its
increasing population. Canada experienced n increase in its population from 34.9 million to
36.5 billion. The country also experiences a high literacy rate of 97 percent. Thus, the country
experiences an increase in its growth rate by 2 percent. The overall positive environment of
the country puts a positive impact on the demand for liquor. This is because people of the
country are educated and has the purchasing power required to buy liquor. The high
purchasing power f the consumer also shows that they love to lead a high-class life (Hall,
Robert & Marc Lieberman, 2012).
1

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Figure 1: Increase in demand for liquor
Source: (author’s creation)
From the above figure, it can be seen that due to the above-mentioned factors has put
a positive impact on the demand for liquor. The aggregate quantity demanded for liquor has
increased from Q to Q1. Such an increase is because of increasing living standard of the
people and increasing preference for liquor. The change in aggregate demand for liquor is
mainly due to changes in other factors rather than price (Baumol et. al., 2015). Thus, the price
for liquor is unaffected in the above diagram. Moreover, the product Tequila is considered as
a luxury item and thus, it has a relatively elastic demand. The demand for this product is not
affected too much extent. With a change in the factors of the economy such as GDP rate,
unemployment, purchasing power and the changing life style of the people the demand for
liquor will increase but not to that extent (Wetzstein, 2013).
Answer 2a
The country of Canada aimed at a GDP growth rate of 2 percent in 2017 and a
inflation rate between 1 to 3 percent. According to the policy goals of Canada, the country
has been able to achieve the growth rate of 1.5 percent and an inflation rate of 1.2 percent
(Ryan-Collins, 2015). The monetary policy of the country had the objective of achieving a
stable, predictable and low inflation economy. Thus, the country always aimed at two policy
components such as inflation control policy and flexible exchange rate policy. In reducing
inflation in the country the nation has also targeted a high interest rate policy on loan and
mortgages.
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2015 2016 2017
0
0.5
1
1.5
2
2.5
3
3.5
4
gdp growth rate
gdp growth rate
Figure 2: GDP growth rate of three years
Source: (GDP growth, 2017)
From the above figure, it can be seen that Canada has experienced an increase in its
GDP growth rate in 2017 compared to its past years. It has a GDP growth rate of 2.7 percent
in 2015which increased to 2.8 in 2016. Presently in 2017, the GDP growth rate of Canada
increased to 3.7, which even exceeded the estimated growth rate of 3.6 percent. Thus, the
economy of Canada is expanding at a faster rate (Svensson, 2015).
2015 2016 2017
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
inflation rate
3