Macroeconomic Analysis of GDP Growth Rate of Canada †Free Samples

Question: Discuss about the Macroeconomic Analysis of GDP Growth Rate of Canada. Answer: Chosen news article Fading Consumers Make Canada's GDP Slowdown Worse Than Expected by Theophilos Argitis, published in Bloomberg, Canada on March 2, 2018. Summary of the news article Economy of Canada slowed down unexpectedly in the second half of 2017, with a GDP growth rate of 1.6% in the second half, compared to 4.2% in the first half. The gap between the GDP of the USA and Canada was largest in the second half of 2017. The household sector cut down on the spending, leading to the fall in growth. The housing market gains helped the Canadian GDP to compensate the fall in the GDP due to a fall in manufacturing and construction Fall in the household spending affected the consumption and GDP growth and led to higher saving rate, 4.2% in the fourth quarter compared to 4% in the third quarter. Non-residential business investment accelerated in fourth quarter up to 8.2% on a yearly basis. The growth rate improved by 0.1% in the fourth quarter of 2017 due to slightly improved residential spending on the consumer goods leading to a better condition at 3.9% growth. Identification of the macroeconomic concept The article focuses on the impact of household spending on the growth of GDP or economic growth of the nation and reduction in the addition of inventories by the retail and consumer goods businesses that led a to fall in the economic growth by 0.7%. Analysis of the economic concepts It has been found that in the second half of 2017, that is, the third and fourth quarters of the financial year, the consumer goods business sector faced a downfall in the revenue, which had affected the total GDP of the country. The reason identified was that the household sector was more inclined towards saving, rather than towards spending (Argitis, 2018). The fall in the consumer spending has influenced the retail and other businesses to reduce the addition of the inventories, which affected the manufacturing and total production of Canada in the second half of 2017. GDP refers to the total value of the goods and services produced within the geographical boundaries of a nation in a specific time period (Mankiw, 2014). It is calculated by adding the consumption (C), investment (I), government expenditure (G) and net exports, that is, the difference between exports (X) and imports (M). Household spending is accounted under consumption and it can be said that, fall in the household consumption or spending can affect the GDP negatively (Rios, McConnell Brue, 2013). The level of investment cannot increase to offset the fall in consumption. The fall in the demand for products in the domestic economy led to a fall in the inventories which resulted in the fall in production and in the GDP as well. As seen from the diagram, the fall in the aggregate demand in the economy leads to a fall in the overall price level and the total output of the nation decreases. Household constitutes a larger part of the economy and fall in the household spending reduces the consumption expenditure component in the GDP. This indicates a fall in the aggregate demand in the nation which results in the fall of GDP and economic growth. To counter this situation, Canada should increase the level of exports. Rise in the exports can give a boost to the domestic economy and the next export component in the GDP will rise. There has been a trend in the rise of investment by the household, which can be inferred from the observation that, the household sector is saving up more to invest in the housing. Personal connection with the topic The article is interesting in the aspect of how the consumption pattern by the household can affect the GDP and economic growth of a country. The existing economic scenario, depicted in this article, has been affecting the employees of consumer goods retail industry. Due to a fall in the revenue and profit, some companies could not provide a hike in the salary and some had to go for reducing the workforce for cost cutting. One of my friends was working part time with clothing retailer Jacob, who lost his job due to the cost cutting policies by the company resulting from the fall in profit in the second half of 2017. Linking with the Economic Way of Thinking The news article addressed the issues of falling customer spending in the economy, leading to unexpected fall in the GDP of Canada. Following the Economic Way of Thinking topics, this issue follows the choosing at the margin behavior by comparing the marginal and cost and benefit of the factor (Jullien, Rey Saavedra, 2014). The consumers have made the cost benefit analysis of spending on the retail products than on the housing. The demand for housing or real estate has increased in Canada in 2017, following the increase in population and rise in the disposable income of the people. Hence, getting a house would be more beneficial to the people than consuming more consumer retail products. Thus, they found the marginal benefit of saving and investment in the housing sector is more than the marginal cost of not purchasing retail products. Linking to Two Big Economic Questions Two Big Economic Questions are how the choices determine what, how and for whom the products and services are produced and does self-interest or social interest determine the choices made. Regarding the first question, goods and services in an economy are produced for the people of the country. All types of products are produced using four factors of production, that is, land, labor, capital and entrepreneurship (Barr, 2012). The distribution of the goods and services happens on the basis of the income of the people of the country. The factors of production earn particular incomes that are, rent for land, wages for labor, interest for capital, and profit for the entrepreneurs. The goods and services are allocated as per the income and purchasing power of people (Mankiw, 2014). Regarding the second question, the economic production majorly happens for the social interest. Efficiency and equity are two major dimensions of the social interest. The manufacturing industry produces goods for all the consumers of the nation, which reflects the idea of equity (Bovenberg Cnossen, 2012). Similarly, resource allocation is aimed to achieve efficiency, refereeing to the distribution of goods and services in a way that one person will not be better without making another worse (Dow, 2012). The issue in the given news article reflects that the consumer goods and housing are produced using the factors of production for the citizens of Canada, pursuing the social interest of achieving efficiency and equity. References Argitis, T. (2018).Fading Consumers Make Canada's GDP Slowdown Worse Than Expected.Bloomberg.com. Retrieved 26 March 2018, from https://www.bloomberg.com/news/articles/2018-03-02/canada-s-economy-slowed-more-quickly-than-expected-in-2nd-half Barr, N. (2012).Economics of the welfare state. Oxford University Press. Bovenberg, L., Cnossen, S. (Eds.). (2012).Publiceconomics and the environment in an imperfect world(Vol. 8). Springer Science Business Media. Dow, S. C. (2012).Foundations for new economic thinking: a collection of essays. Palgrave Macmillan. Jullien, B., Rey, P., Saavedra, C. (2014). Theeconomics of margin squeeze. Mankiw, N. G. (2014).Principles of macroeconomics. Cengage Learning. Rios, M. C., McConnell, C. R., Brue, S. L. (2013). Economics: Principles, problems, and policies. McGraw-Hill.