GDP Of Canada And Corresponding Growth Rate †MyAssignmenthelp.com

Question: Discuss about the GDP Of Canada And Corresponding Growth Rate. Answer: Article Summary The statistics Canada has reported that in December GDP of Canada grew at a rate of 1.7 percent as opposed to the expected growth rate of 2 per cent (bnn.ca, 2018). The higher gains from housing market driven Canadas GDP to a higher level. The gain from housing market helped to counteract the decline in manufacturing and construction. Last year, GDP was accounted a growth rate of 0.3 percent. This was the fastest growth rate since 2011. In the fourth quarter, export has recovered recording an annual gain of 3 percent. The export has regained after a recording a decline in the third quarter. Despite growth recovery in the export sector, the external sector has continued to impose a drag on the economys GDP with a higher share of import (bnn.ca, 2018).. Household spending has slowed down. This is due to a higher rate of household saving. In the fourth quarter, the household saving rate rose to 4.2 percent from an earlier rate of 4% in third quarter. Business has continued to add inventories in the economy. However, inventory has declined slightly as compared to last quarter. The drag in inventory investment has reduced GDP growth by 0.7%. An acceleration has been observed in non-residential business investment, which grew by 8.2 percent in fourth quarter. Economic concept The article concerns with GDP of Canada and corresponding growth rate in GDP. The relevantmacroeconomics concepts that needs to be evaluated are GDP, different components of GDP, difference between actual and potential GDP and growth in GDP (Agnor, P. R., Montiel, 2015). Economic Analysis: Gross Domestic Product Gross Domestic Product measures the total monetary values of goods and services produce in the nation in a particular period. There are different approaches for computing GDP. The most commonly used approach is expenditure approach. The different components of GDP under expenditure approach include consumption expenditure, investment expenditure, government expenditure and net export (Bernanke, Antonovics Frank, 2015). Changes in any one components causes a significant change in GDP. GDP = C + I + G + (X M) C: Consumption I: Investment G: Government expenditure X: Export M: Import GDP growth The growth in GDP is the percentage change in GDP between two consecutive years. The quarter-to-quarter growth rate in GDP indicates the health of the economy (Baharumshah, 2017). The Canadian economy has recorded a growth rate of 1.7% in the fourth quarter. This hurts the analyst expectation of a 2 percent growth rate (bnn.ca, 2018). The low or stagnant growth rate indicates deterioration of economic health of Canada. The household spending and residential investment play an important role in determining GDP growth. In the fourth quarter of 2017, the residential investment in Canada rose by 13.4 percent. This is the strongest ever-housing investment in the economy since 2012. Gain from the housing market has far exceeded the expectation regarding construction of new homes. Buyers have high speculative demand for housing in response of tighter mortgage rule that had been effectively implemented from 1st January (bnn.ca 2018). The increase in residential investment has made significan t contribution in GDP growth. Of the 1.7 percent growth, the residential investment contributed 1 percentage point growth. The increase in residential investment in turn reduces spending on household consumption. The consumption has slowed down in the fourth and reached to the lowest level since 2016. Actual and Potential GDP Actual GDP is defined as measured value of goods and services in a nation at a particular time interval. The potential GDP on the other hand measures the maximum level of output that economy can produce by maintaining high employment across different sectors and a stability in prices and currency. The unprecedented economic events prevents actual GDP from reaching to potential GDP (Heijdra, 2017). The difference between actual and potential GDP is defined a GDP gap. At present, Canadian economy grows at around only its potential level. This contrasts expectation of the analysts. They expect Canadian economy to grow above its non-inflationary limit accounted in the last year. The trade uncertainties and behavior of price level influences the decision of Bank of Canada in setting interest rate. Personal Connection Gross Domestic Product is the most important macroeconomic indicators for determining health of the economy. Therefore, in making macroeconomic analysis the movement of GDP appears to be most important. GDP not only provides a measure of output but also gives indication about future of the labor market or price level expectation. In the phase of rising GDP, most of sectors in the economy perform well creating job opportunities and hence improving the condition of labor market. GDP is an indicator of economic prosperity (Uribe Schmitt-Groh, 2017). A prosperous economy ensures satisfaction among the citizens. Being a citizen of Canada the growth of output or GDP growth of Canada seems as a vital aspect to scrutinize. Economic way of thinking The common problem that every economy face is the problem of choice. People have unlimited wants while only limited means to satisfy these wants. Consequently, people faces trade off in their everyday life. One common example of tradeoff is the distribution of income between consumption and saving. The more people tend save the less they have to spend for consumption (Mankiw, 2014). Now, consumption spending is an important component of GDP. A situation of tradeoff is reflected between consumption and residential investment. People in Canada in recent years have significantly increased their residential investment. For raising investment in residential market, they have less income available for consumption spending. Consumption demand has reached to a recorded low level since 2016. The declining consumption spending have reduced growth in GDP. Connection to big economic question The two big economic questions are what, how and for whom to produce and whether individual guided by self-interest maximizes the social interest. The question related to what, how and for whom to produce is addressed by total output of the nation. GDP by capturing total output produced provides answers to the first question (Bhaskar Murray, 2015). In many situation, though individual motivated by their self-interest maximizes welfare however under certain circumstances this is unlikely to happen. In Canada, for example people in order to maximize their gain from residential investment raises spending on such investment. However, this is not good for the economy as a whole that has recorded a decline in the recent growth rate. References Agnor, P. R., Montiel, P. J. (2015).Developmentmacroeconomics. Princeton University Press. Baharumshah, A. Z. (2017).Openeconomy macroeconomics in East Asia. Routledge. Bernanke, B., Antonovics, K., Frank, R. (2015).Principles of macroeconomics. McGraw-Hill Higher Education. Bhaskar, K., Murray, D. F. (2015). Macroeconomic systems. Routledge. Canadian GDP growth falls short of expectations in Q4 - Article - BNN. (2018).BNN. Retrieved 26 March 2018, from https://www.bnn.ca/canadian-growth-falls-short-of-expectations-in-q4-1.1015676 Canada GDP Growth Rate | 1961-2018 | Data | Chart | Calendar | Forecast. (2018).Tradingeconomics.com. Retrieved 26 March 2018, from https://tradingeconomics.com/canada/gdp-growth Heijdra, B. J. (2017).Foundations of modern macroeconomics. Oxford university press. Mankiw, N. G. (2014).Principles of macroeconomics. Cengage Learning. Uribe, M., Schmitt-Groh, S. (2017).Open economy macroeconomics. Princeton University Press.