Economics 3 Essay: Analysis of CBC News Article on Interest Rates

This economics essay analyzes a CBC News article discussing Canada's decision to lower its interest rate to 1.75% and its divergence from the US monetary policy. The essay explores the potential impacts of this decision, including the stimulation of economic activities through increased borrowing and investment, and the risk of demand-pull inflation. It examines the effects on the Canadian dollar (loonie), international trade, and the country's overall economic development. The essay includes an analysis of the interest rate trends from March 2018 to July 2019, and concludes with a discussion on the future implications of the current monetary policy, suggesting a need to increase the interest rate to curb potential inflation. The essay also considers the effects of the different monetary policies of Canada and the United States.

Running Head: ECONOMICS 1
Macroeconomics
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ECONOMICS 2
Discussion of a recent CBC News article
It is worldly known that recently, Canada lowered her interest rate to 1.75 percent with an
intension of boosting the level of economic activities within the. These low interest rates gives
citizens an opportunity of increasing their capacity of borrowing and later invest in various
businesses. It’s very essential because the country has chances of growing at a very high rate in
terms of infrastructures, citizens are able to acquire all their needs and thus poverty is curbed.
However, the low interest rate may become dangerous to Canada’s economy as it leads to
demand-pull inflation where demand may surpass surplus in the economy. This indicates that in
future, Canada is likely to have an inflation rate higher than 2 percent.
The prices of commodities in Canada will remain low due to excessive production units
and this means there will be increase in level of demand. But since Canada is a net exporter then
the commodities will be exported to other countries say United States, China, Japan, Australia
among others and its foreign exchange is forecasted to be high leading to more development of
the country. Therefore having a different monetary policy with United States will help Canada
trade freely with US as the two are neighbors.
On the other hand, United States is likely to have low development because of hiking its
interest rates. People will reduce the level of borrowing and as well investment level. United
States is a net importer and therefore it raising the interest rate may not greatly affect the level of
her development but since it has had an abrupt increase in interest rate after a long period of low
and constant interest rate, the country is likely to face some issues with its economy.
Figure 1: The interest rates of Canada from March. 2018 to July. 2019

ECONOMICS 3
Figure 1 above indicates that the interest rate of Canada was low and constant from
March 2018 to May 2018 at 1.25% The Central bank of Canada later rose its interest rate to 1.5%
from July to September 2018. The interest rate rose again to 1.75% from October 2018 to July
2019.
Conclusion
Conclusively, the current interest rate of Canada of 1.75 percent will positively influence
the growth and development of the country but in future, the country should increase the interest
rate to curb the demand pull inflation which likely to attack the country.

ECONOMICS 4