Macroeconomic Analysis - Assignment

Running head: MACROECONOMIC ASSIGNMENT
Macroeconomic Assignment
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer 1....................................................................................................................................2
Introduction............................................................................................................................2
Economy of Canada...............................................................................................................2
Economic Trend of Canada....................................................................................................3
Economy of Canada between 2007-2010..............................................................................4
Economic events in the period of interest..............................................................................6
Reason: Global Financial Crisis (2007-2009)....................................................................6
Reason behind fast recovery of Canada.............................................................................7
Economic Implications and Interpretation.............................................................................8
Loanable Fund Theory.......................................................................................................8
Aggregate demand and Aggregate Supply Theory............................................................9
Conclusion............................................................................................................................14
Answer 2..................................................................................................................................15
Global Economic Outlook....................................................................................................15
Economic Outlook of Canada..............................................................................................18
GDP prediction for Canada and for the world.....................................................................19
References................................................................................................................................21

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Answer 1
Introduction
Attributing to the international phenomena like that of Globalization, industrial
revolutions, trade and commerce liberalization and also technological and infrastructural
innovations, the global economy has been becoming more integrated, inclusive and
connected. This in turn implies that the growth and dynamics of the economy of a country, in
the present period, depends on its endogenous activities and attributes as well as on the
exogenous factors which exist outside the concerned country but have considerable influence
on the economic trends of the same1.
Keeping this into consideration, the concerned assignment tries to study the economic
performance of one of the distinctively growing and economically prospering countries in the
global scenario, the economy of Canada, specifically emphasizing on the performance of the
same in the last fifteen years, thereby selecting a period in that time span, showing interesting
economic dynamics.
Economy of Canada
As discussed above, Canada is one of the primary developed mixed economy in the
contemporary global scenario, with substantial presence of a growing private sector as well as
a robust and efficient public sector in the economy. Ranking tenth in terms of global nominal
GDP and seventeenth in terms of purchasing power adjusted GDP, the country’s economy is
dominated by a growing service sector and the country is also globally popular for the
presence of huge natural resources and petroleum reserves and a stable manufacturing sector
which has grown and prospered over the years2.
1 Holland, John H. "The global economy as an adaptive process." The economy as an evolving complex system.
CRC Press, 2018. 117-124.
2 Schneider, Friedrich. "Size and development of the shadow economy of 31 European and 5 other OECD
countries from 2003 to 2012: some new facts." Accessed June 13 (2012): 2015.

4MACROECONOMIC ASSIGNMENT
Economic Trend of Canada
To measure the economic performance of any country in a period, the primary
indicator which is used is the dynamics in the Gross Domestic Product in the country at that
period. Keeping this into consideration, the GDP of Canada over the past fifteen years can be
seen to be as follows:
Figure 1: GDP of Canada (2003-2018)3
As is evident from the above figure the GDP of the concerned country can be seen to
show an impressive growth trend over the period of 2003 to 2018, with the trend being
strictly positive in almost all parts of the concerned period4. However, one exception can be
seen in this otherwise impressively growing trend of Gross Domestic Product of the country,
specifically during the time period of 2008-2009, when the parameter actually showed a
declining trait.
3 Tradingeconomics.com, "Canada GDP | 1960-2018 | Data | Chart | Calendar | Forecast |
News", Tradingeconomics.com, 2018, online, Internet, 12 May 2018. , Available:
https://tradingeconomics.com/canada/gdp.
4 Cross, Philip, and Philippe Bergevin. "Turning points: business cycles in Canada since 1926." (2012).

5MACROECONOMIC ASSIGNMENT
Figure 2: GDP growth rate of Canada (2003-2018)5
As is evident from the above figure, the growth rate of the GDP in Canada actually
augments the findings in the trend of GDP of the country. The rates (both positive and
negative) being subtle in other periods, however showed a massive decline during the period
of 2008-2009, the decline being the biggest in the concerned time period.
Thus, both from the GDP trend and from the dynamics of the growth rate of the same
in Canada, it can be seen that the period between 2007-2010 is a period of interesting
economic trend for the country and the following section of the assignment tries to emphasize
on the economic activities in the concerned period in Canada.
Economy of Canada between 2007-2010
To get a clear view of the GDP dynamics in the chosen period of interest, the following
figure is taken into account:
5 Tradingeconomics.com, "Canada GDP Growth Rate | 1961-2018 | Data | Chart | Calendar |
Forecast", Tradingeconomics.com, 2018, online, Internet, 12 May 2018. , Available:
https://tradingeconomics.com/canada/gdp-growth.

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Figure 3: GDP of Canada (2006-2010)6
To understand the deviation clearly in the above figure, the GDP is measured from
2006-2010 and the trend clearly shows a visible decline from the second half of 2008, the
same declining massively by 2009. However, the decline does not seem to sustain for a long
period as the country quickly recovers from the shock and catches up with high GDP growth
by 2010.
Figure 4: GDP growth rate of Canada (2006-2010)7
6 Tradingeconomics.com, "Canada GDP | 1960-2018 | Data | Chart | Calendar | Forecast |
News", Tradingeconomics.com, 2018, online, Internet, 12 May 2018. , Available:
https://tradingeconomics.com/canada/gdp.
7 Tradingeconomics.com, "Canada GDP Growth Rate | 1961-2018 | Data | Chart | Calendar |
Forecast", Tradingeconomics.com, 2018, online, Internet, 12 May 2018. , Available:
https://tradingeconomics.com/canada/gdp-growth.

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As is clear from the above figure, the otherwise stable growth rate of the GDP of the
country declined massively (to as low as -2.5) during the end of 2008 and continued till 2009
but the rate recovered abruptly and quite impressively and became positive by 2010, which is
highly impressive.
Economic events in the period of interest
The steep decline in the overall GDP statistics in the period of interest indicates
towards some unusual economic phenomena which affected the economy of the country as a
whole and the fast recovery from the problem also indicates towards the strategic and policy
strengths of the country which worked efficiently in the concerned period.
Reason: Global Financial Crisis (2007-2009)
The primary and the most important factor which can be considered to be the
contributing to the huge decline in the GDP of Canada in 2008-2009 is the Global Financial
Crisis which occurred at that point of time. The Global Financial Crisis, being considered as
one of the worst global economic crisis till date, originated in the United States of America,
primarily with the bursting of a sub-prime mortgage bubble but in no time turned into an
international financial crisis and banking trouble, affecting not only the USA but also all the
significant economies in the world and their financial system8. This in turn also affected the
economy of Canada to some extent like the other economies but however, the effects were
not as severe and long lasting in Canada as was in other countries. To assert the same, the
trends in GDP growth of the USA and Canada are compared and shown as follows:
8 Berkmen, S. Pelin, et al. "The global financial crisis: Explaining cross-country differences in the output
impact." Journal of International Money and Finance 31.1 (2012): 42-59.

8MACROECONOMIC ASSIGNMENT
Figure 5: Comparison of GDP dynamics of the USA and Canada (2006-2010)9
As is evident from the above figure, though the decline in the GDP of Canada was
more severe than that of the USA during 2008-2009, the former however picked up much
faster than the latter as can be seen from faster growth of GDP of Canada than that of the
USA, the growth of the former surpassing that of the latter from 201010.
Reason behind fast recovery of Canada
One of the primary reason behind the fast and abrupt recovery of Canada can be cited
as the stability and strength of the financial sector of the country, due to which the country
did not actually experience any banking crisis unlike other countries whose financial and
banking sector was immensely affected by the Global Financial Crisis which in turn
contributed to the long term economic tensions in the other economies.
9 Tradingeconomics.com, "United States GDP | 1960-2018 | Data | Chart | Calendar | Forecast |
News", Tradingeconomics.com, 2018, online, Internet, 12 May 2018. , Available:
https://tradingeconomics.com/united-states/gdp.
10 Chor, Davin, and Kalina Manova. "Off the cliff and back? Credit conditions and international trade during the
global financial crisis." Journal of international economics 87.1 (2012): 117-133.

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Economic Implications and Interpretation
Loanable Fund Theory
One of the primary variable in the money market is the rate of interest which prevails
in the economy. According to the Loanable Funds Theory, this rate of interest is the price of
the loanable funds (funds which are saved by people and lent out for investment instead of
using it for personal consumption), which is determined by the demand and supply of
loanable funds in the economy11.
Figure 6: Determination of rate of interest by demand and supply of loanable funds
(Source: As created by the author)
11 Bertocco, Giancarlo. "On Keynes's Criticism of the Loanable Funds Theory." Review of Political
Economy 25.2 (2013): 309-326.

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This type of system was highly present in the banking system of the USA and many
other economies of the world at that point of time, which, in the absence of regulation and
strict monitoring contributed to the creation and persistence of the acute financial crisis.
However, the Canadian banking system is one where the government has considerable
power and authority to control, charter and regulate the banks and their activities12. At the
onset of the crisis, the monetary authority of the country responded by hugely increasing the
rate of interest in the country, thereafter decreasing the same from 2009, as can be seen from
the following figure:
Figure 7: Rate of interest in Canada13
Aggregate demand and Aggregate Supply Theory
The impacts of the interest rate regulation of the government can be explained with
the help of the aggregate demand and supply model, which shows the dynamics of price and
GDP of a country as effects of fluctuations of aggregate demand and supply in the country.
12 Bordo, Michael D., Angela Redish, and Hugh Rockoff. "Why didn't Canada have a banking crisis in 2008 (or
in 1930, or 1907, or…)?." The Economic History Review 68.1 (2015): 218-243.
13Tradingeconomics.com, "Canada Interest Rate | 1990-2018 | Data | Chart | Calendar |
Forecast", Tradingeconomics.com, 2018, online, Internet, 12 May 2018. , Available:
https://tradingeconomics.com/canada/interest-rate.

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In this context, the high interest rates in Canada, during 2007-2008, led to the
decrease in Investment expenditures which in turn being a component of the aggregate
demand of the country, led to the decrease in the aggregate demand at that point of time, the
effects of which can be showed as follows:
Figure 8: Decrease in aggregate demand
(Source: As created by the author)
This in turn decreased the GDP of the country as can be seen from the above figures
and also the price levels of the country. However, this was followed by a huge regulated fall
in the interest rate, by the government of Canada in order to stimulate the economy. This in
turn encouraged more investment activities, which in turn increased the aggregate demand in
the economy:

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Figure 9: Increase in aggregate demand
(Source: As created by the author)
This in turn helped in increasing the productivity as well as the GDP of the country as
can be seen from its abrupt recovery from the crisis period.
This can be empirically supported with the help of the investment dynamics of the
country, in the same period, which can be seen from the following figure:

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Figure 10: Capital formation or investment in Canada (2006-2010)14
As can be seen from the above figure, the investments which fell massively in Canada
in 2008-2009, during the financial crisis, quickly recovered in the initial quarter of 2010 only
and from then went on increasing steadily, which can be attributed to the regulated decline in
the interest rate of the country15. The increase in investment, thereby increased the aggregate
demand of the country (as shown in Figure 10). This has also led to the creation of more jobs,
which in turn increased consumption expenditure, thereby shifting aggregate demand even
more:
14 Tradingeconomics.com, "Canada Gross Fixed Capital Formation | 1961-2018 | Data | Chart |
Calendar", Tradingeconomics.com, 2018, online, Internet, 12 May 2018. , Available:
https://tradingeconomics.com/canada/gross-fixed-capital-formation.
15 Rao, B. Bhaskara, ed. Aggregate demand and supply: A critique of orthodox macroeconomic modelling.
Springer, 2016.

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Figure 11: Increase in consumption expenditure
(Source: As created by the author)
Along with this the country also experienced technological innovations and
productive efficiency, which in turn led to the decrease in the cost of production, thereby
increasing the aggregate supply of the economy:

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Figure 12: Increase in both aggregate demand and aggregate supply
(Source: As created by the author)
Together these factors led to the increase in the overall economic activities in Canada,
thereby helping the country to come out of the financial crisis and recessionary situations
abruptly16.
Conclusion
From the above discussion it can be asserted that the economy of Canada, being one
of the stable and prospering economies in the world, experienced considerable fluctuations
and economic turmoil in 2008-2009, owing to the Global Financial Crisis. However, the
economy managed to recover fast and impressively, much of which can be attributed to the
strength of the financial and banking system of the country, the control and power of
regulation of the financial system by the government of the country and the efficient and time
appropriate insightful policies taken by the same to combat the crisis and in preventing the
effects to be prolonged and more severe.
16 Onaran, Özlem, and Giorgos Galanis. "Is aggregate demand wage-led or profit-led." National and global
effects‟. Conditions of Work and Employment Series 31 (2012).

16MACROECONOMIC ASSIGNMENT
Answer 2
Global Economic Outlook
The world economy as a whole has experienced considerable dynamics and growth
over the last few years, performing robustly in almost all the macroeconomic indicators. The
performance of the global economy can be primarily observed with the help of the dynamics
observed in the Global Gross Domestic Product over the years, which measures the total
value of the goods and services which are produced across the world over the years and in
turn gives an insight about the overall productivity, employment, economic welfare and
progress scenario of the world as a whole.
Thus, to understand the probable macroeconomic performance of the world in the
next five years, it is of immense importance to take into account the dynamics in the global
GDP in the last few years, which can be seen as follows:

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Figure 13: Global GDP (2001-2016)17
As is evident from the above figure, the GDP of the world, which fell massively in
2008, has however coped up and shows positive traits in the recent period.
In the coming years, this growth trend in expected to persist in the global scenario,
provided there is no initiation of crisis of global magnitude. This can be asserted with the
help of the following evidences:
 Fast Recovery- The globally advanced economies, recovering fast from the economic
downturn are seen to pick up fast which in turn indicates that they will continue to
grow in the next five years. However, there growth rates are expected to slow down to
some extent, especially for Japan, Korea, USA and Germany18.
 Emerging economies- The expected sluggish growth rates of the developed countries
are expected to be more than compensated by the higher growth rate of the emerging
economies like Brazil, China, India and South Africa.
 Investment- The global investment is expected to increase in the coming years due to
the promising trends showed by the world trade growth in the last few years, which in
turn has led to creation of investment, especially in the developing economies.
 Employment and Consumption demand- The world productivity is also expected to
increase considerably and the Asian countries are also expected to experience huge
growth in the manufacturing output and high technological products. This in turn is
expected to create more employment scopes, thereby expectedly increasing the
consumer confidence, expenditure and aggregate demand in the global economy19.
 Oil price and inflation- The crude oil price which rose considerably over the years,
thereby creating inflationary pressure in the economies as a whole, is expected to
17 Data.worldbank.org, "GDP growth (annual %) | Data", Data.worldbank.org, 2018, online, Internet, 12 May
2018. , Available: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG.
18 Hermansson, Cecilia. "Global Economic Outlook." Retrieved from (2012).
19 Barua, Akrur. "Yearning for the good times." Global Economic Outlook: 36.

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decrease in the next four five years, which in turn is expected to improve the cost
efficiency in production, supply and decrease the inflationary pressure in the global
framework.
 Bond and equity market- There are several possibilities of risky situations and
vulnerabilities in the global equity market due to the fall of inflation and low rate of
corporate and sovereign borrowers in the international scenario. However, given the
possible growth of investment in the corporate and manufacturing sectors this market
is also expected to prosper in the coming years.
 Trade agreements- With the number of free trade agreements between different
countries across the world increasing there are scopes of increase in the volume of
trade and thus increase in the comparative advantages of the countries. However, with
the NAFTA between USA and UK in renegotiation, there are chances of increase in
regulatory realignments and trade barriers between these two global economic giants,
which in turn can lead to the creation of inward looking policies and widening of
external imbalances.
Given these situations and expected of the different macroeconomic indicators, the
global economy is expected to grow impressively and prosper in the coming five years.
Economic Outlook of Canada
The economy of Canada and its growth pattern, being that of an open economy has
been synchronised with that of the growth trend of the global economy over the years.
However, in the next five years there are some positive as well as some negative predictions
for the economy of the country, which are as follows:
 Decrease in export value- One of the primary event which is expected to benefit the
global economy as a whole in the next five years is the reduction in the oil prices.

19MACROECONOMIC ASSIGNMENT
However, Canada being a primary exporter of the same, decrease in the oil prices is
expected to decrease the earnings from export for the country20.
 Inflation- The level of inflation in the economy is expected to be more or less
constant in the coming years as there is no prediction of economic crisis in the
country in the next five years.
 Employment- In spite of the increase in the number of jobs added in the economy in
the recent and coming years, the country is expected to experience a bit higher
unemployment rates in the coming five years. This can be attributed to the fact that
with the increase in the development of the service sector and with more resources
directed to that sector, the new jobs created are mainly in this domain and at the cost
of the agricultural and manufacturing sector jobs21. The increasing migration in the
country is also expected to contribute in increasing the unemployment significantly as
most of the people migrating in the country are from the troubled developing or poor
countries with basic skills and no substantial knowledge to get absorbed in the high
skilled and capital-intensive service sector which is growing in the country in the
contemporary times22.
 Rate of interest- The rate of interest in the country being considerably low in the
recent period, the government of Canada is expected to increase the same in the
coming years in anticipation of the increase in the rate of interest of the USA, which
in turn may leas to a decrease in the investment activities as a whole23.
20 Rahman, Sajjadur, and Apostolos Serletis. "Oil price uncertainty and the Canadian economy: Evidence from a
VARMA, GARCH-in-Mean, asymmetric BEKK model." Energy Economics 34.2 (2012): 603-610.
21 Gervais, Olivier, and Marc-André Gosselin. Analyzing and forecasting the Canadian economy through the
LENS model. Bank of Canada= Banque du Canada, 2014.
22 Kustec, Stan. The role of migrant labour supply in the Canadian labour market. Citizenship and Immigration
Canada, 2012.
23 Vasishtha, Garima, and Philipp Maier. "The impact of the global business cycle on small open economies: A
FAVAR approach for Canada." The North American Journal of Economics and Finance 24 (2013): 191-207.

20MACROECONOMIC ASSIGNMENT
Keeping these factors into consideration it may be expected that the economy of
Canada will be growing in the next five years. However, the growth rate of the economy of
the country is expected to slow down to some extent.
GDP prediction for Canada and for the world
Keeping the above discussion into consideration, it can be effectively predicted that in
the next five years, both the world economy as well as the economy of Canada are expected
to experience an overall increasing trend in their productivities. However, due to its inherent
issues as well as due to several exogenous factors like crude oil price decrease in the coming
years, the increase in the productivity of Canada is expected to be a bit sluggish compared to
the increase in the productivity of the global economy.
Keeping this into consideration, it can be asserted that in the next five years, both the
global GDP as well as the Canadian GDP are expected to increase. However, the increase in
the GDP of Canada is expected to be comparatively lower than the increase in the GDP of the
world as a whole.

21MACROECONOMIC ASSIGNMENT
References
Barua, Akrur. "Yearning for the good times." Global Economic Outlook: 36.
Berkmen, S. Pelin, et al. "The global financial crisis: Explaining cross-country differences in
the output impact." Journal of International Money and Finance 31.1 (2012): 42-59.
Bertocco, Giancarlo. "On Keynes's Criticism of the Loanable Funds Theory." Review of
Political Economy 25.2 (2013): 309-326.
Bordo, Michael D., Angela Redish, and Hugh Rockoff. "Why didn't Canada have a banking
crisis in 2008 (or in 1930, or 1907, or…)?." The Economic History Review 68.1 (2015): 218-
243.

22MACROECONOMIC ASSIGNMENT
Chor, Davin, and Kalina Manova. "Off the cliff and back? Credit conditions and international
trade during the global financial crisis." Journal of international economics 87.1 (2012): 117-
133.
Cross, Philip, and Philippe Bergevin. "Turning points: business cycles in Canada since 1926."
(2012).
Data.worldbank.org. "GDP growth (annual %) | Data". Data.worldbank.org, 2018. Online.
Internet. 12 May 2018. . Available:
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG.
Gervais, Olivier, and Marc-André Gosselin. Analyzing and forecasting the Canadian
economy through the LENS model. Bank of Canada= Banque du Canada, 2014.
Hermansson, Cecilia. "Global Economic Outlook." Retrieved from (2012).
Holland, John H. "The global economy as an adaptive process." The economy as an evolving
complex system. CRC Press, 2018. 117-124.
Kustec, Stan. The role of migrant labour supply in the Canadian labour market. Citizenship
and Immigration Canada, 2012.
Onaran, Özlem, and Giorgos Galanis. "Is aggregate demand wage-led or profit-led." National
and global effects‟. Conditions of Work and Employment Series 31 (2012).
Rahman, Sajjadur, and Apostolos Serletis. "Oil price uncertainty and the Canadian economy:
Evidence from a VARMA, GARCH-in-Mean, asymmetric BEKK model." Energy
Economics 34.2 (2012): 603-610.
Rao, B. Bhaskara, ed. Aggregate demand and supply: A critique of orthodox macroeconomic
modelling. Springer, 2016.

23MACROECONOMIC ASSIGNMENT
Schneider, Friedrich. "Size and development of the shadow economy of 31 European and 5
other OECD countries from 2003 to 2012: some new facts." Accessed June 13 (2012): 2015.
Tradingeconomics.com. "Canada GDP | 1960-2018 | Data | Chart | Calendar | Forecast |
News". Tradingeconomics.com, 2018. Online. Internet. 12 May 2018. . Available:
https://tradingeconomics.com/canada/gdp.
Tradingeconomics.com. "Canada GDP Growth Rate | 1961-2018 | Data | Chart | Calendar |
Forecast". Tradingeconomics.com, 2018. Online. Internet. 12 May 2018. . Available:
https://tradingeconomics.com/canada/gdp-growth.
Tradingeconomics.com. "Canada Gross Fixed Capital Formation | 1961-2018 | Data | Chart |
Calendar". Tradingeconomics.com, 2018. Online. Internet. 12 May 2018. . Available:
https://tradingeconomics.com/canada/gross-fixed-capital-formation.
Tradingeconomics.com. "Canada Interest Rate | 1990-2018 | Data | Chart | Calendar |
Forecast". Tradingeconomics.com, 2018. Online. Internet. 12 May 2018. . Available:
https://tradingeconomics.com/canada/interest-rate.
Tradingeconomics.com. "United States GDP | 1960-2018 | Data | Chart | Calendar | Forecast |
News". Tradingeconomics.com, 2018. Online. Internet. 12 May 2018. . Available:
https://tradingeconomics.com/united-states/gdp.
Vasishtha, Garima, and Philipp Maier. "The impact of the global business cycle on small
open economies: A FAVAR approach for Canada." The North American Journal of
Economics and Finance 24 (2013): 191-207.