Canada’s Economy in 1996To investigate the state of the Canadian economy, it is very useful totrack Canada’s six major economic goals: economic growth, economic stability,economic efficiency, economic equity, viable balance of payments, and lowunemployment. At a given time, Canada is achieving some of these goals whilefalling behind on some of the others. When taken all into consideration, thesegoals give an indication of how well Canada has been doing and the stage of thebusiness cycle the Canadian economy is in. In 1996-1997, Canada is in slightrecession and is only meeting the goals of economic stability, and viablebalance of payments.
Canada can be said to be in a period of slight recession because there isa downswing in economic activity. To confirm a true recovery, “an economy mustshow no growth for two consecutive quarters.” However, Canada is not in a truerecession because there was a 3.0% growth in the third quarter, compared to2.2% in the second quarter. Eventhough it is not true recession, the slowgrowth is a sure sign of a slight one.
Low inflation is also is also prevalentand is symptomatic of a weak economy. A low inflation rate of 1.4% in November1996 does not provide much of an indication for economic growth and expansion.A shrinking positive balance of payments indicates these are tough economictimes. A fourth indication of a slight recession is the high unemployment rate.
An unemployment rate of 10.0% in November 1996 is definitely not a sign ofstrong economic recovery.Canada is always trying to work towards the goal of economic growth.Economic growth is the percentage change of GDP over a period of time and isalso known as the growth rate. In 1996, Canada’s GDP has been increasing slowlysince the first quarter. The GDP in the first quarter was 1.8%, then increasedto 2.
2% in the second quarter, and in the third quarter it rose to 3.0%. Inthis way, Canada has been experiencing steady growth. This goal is being metbecause of the increase in consumer spending inspite of the government cutbacks.Consumer spending levels tell producers what to produce, and how much to produce.
If consumer spending increases, it gives a signal to the producers to producemore which causes the increasing GDP. The government cutbacks contribute doescontribute to lower consumer confidence and, thus, slows the economic growth.Slow, growth causes few jobs to be created as it means a slower rate ofexpansion of industries. When there is slow growth, few jobs are being created,so it does not help the goal of low unemployment. Slow growth also keepsinflation low. For example, in September 1996, the inflation rate changed from1.3% to 1.
2%. To stimulate economic growth, interest rates must be kept low.For example, the bank rate decreased to 3.5% in November 1996. This encouragesbusinesses to borrow money and to expand. Increased exports also help stimulateeconomic growth, because increases in foreign demand for Canadian goods andservices may stimulate the domestic markets.
The goal of economic stability has been achieved. In 1996, the inflationrate has been relatively low. The inflation rate has been kept low as a resultof consumer confidence. Consumers were not willing to spend on expensive itemswith the current job picture. This has contributed to the low inflation rate.For 1996, the annual inflation rate has been in the 1.2% to 1.7% range.
The CPIin November 1996 was 136.8, but in November 1995, the CPI was 134.1. Over thecourse of the year, the CPI has only changed 2.
0%. The effects of stability isthat the purchasing power of Canadian currency remains more of less the same.With low inflation, the value of the Canadian dollar, decreases very little.Inflation rate can be tolerated if it provides an incentive for businesses toexpand. There, low inflation is also an incentive of economic growth. Lowinflation prompts the banks to lower interest rates which also encourageseconomic growth.
Since there are trade offs when deciding whether to raise orlwer the inflation rate, governments must keep in mind that high inflation isnot healthy, but a little inflation is a prerequisite for growth.The goal of economic efficiency has not yet been achieved, but Canadahas always been progressing towards this goal. In Canada, technology hasconstantly been improving and updating. If new technology is used, the economycan operate more efficiently, for example, the