Economics Assignment: Macroeconomic and Monetary Development of Canada

Running Head: ECONOMICS ASSIGNMENT
Economics Assignment
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ECONOMICS ASSIGNMENT
Table of Contents
Introduction......................................................................................................................................2
Overview of macroeconomic and monetary development of Canada.............................................2
Monetary policy of Canada.............................................................................................................6
Regression Analysis.........................................................................................................................8
Conclusion and Recommendation.................................................................................................10
Reference list.................................................................................................................................11

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ECONOMICS ASSIGNMENT
Introduction
Canada is a highly developed nation having structure of a mixed economy. In terms of
nominal GDP, it ranks 10th in world. Like most of the developed nations, the economy of Canada
is highly dependent on its service sector. Service sector employs 75 percent of laborers in
Canada. Canada has a huge stock of natural resources. Natural resources in Canada valued
approximately US $ 33.2 trillion in 2016. Because of abundant natural resources, the Canada is
also considered as an ‘energy superpower’ (Arnold et al. 2018). The paper first discusses
macroeconomic performance of Canada with attention given on real GDP growth rate, inflation
rate, unemployment rate, total debt, interest and exchange rate. Bank of Canada designs
monetary policy of Canada. In this context, instrument and target of monetary policy is discussed
in reference to real money demand function.
Overview of macroeconomic and monetary development of Canada
Figure 1: Trend in real GDP growth rate

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ECONOMICS ASSIGNMENT
The economy of Canada that relies heavily on export was hit by a decline in oil price and other
raw materials achieved a growth rate of 3% in 2017. With this growth rate, Canada has become
one of the fastest growing nation in G7 (Benigno, Converse and Fornaro 2015). Growth has
increased sharply from 1.41 percent in 2016 to 3% in 2017. Household spending is the biggest
contributor of economic growth. Export has also grown along with a growth in business and
inventory investment. The natural resource industry expanded by 7.8%. As against this, service
industry grew by 2.8%. The federal budget forecasts a growth rate of 2.2% in 2018 and 1.6% in
20019.
Figure 2: Trend inflation in Canada
Rate of inflation in 2012 was 1.55 percent. In the next year, inflation fell to 0.9 percent.
Price level recovered with rate of inflation reaching to 1.9 percent. From 2015 onwards, inflation
rate started to fall with rate of inflation being 1.13%, 1.45% and 1.6% in 2015, 2016 and 2017
respectively. Annual inflation rate of Canada in April 2018, inflation rose to 2.2 percent. This
was the highest inflation rate since 2014. Prices increased for transportation because of an
increase in gasoline price. Because of a decline in cost of travel service, cost of recreation,