Chapter 6 – Determination of National Income
“Canadian dollar tops 89 cents US”
Source: www.cbc.ca
On Friday April 20, the Canadian dollar closed just slightly above 89 cents US as commodities strengthened. The rise of the Canadian dollar is up two-fifths of a cent, which is the highest level in five months. According to Statistics Canada, the national workforce increased by 50,000 workers in March compared to an increase of only 24,500 in February. The increase was more than double the predicted amount of 22,000. The unemployment rate dropped to the lowest since 1974, and the Canadian dollar rose most significantly.
Currently one American dollar buys $1.125 Canadian. Bank of Canada Deputy, Pierre Duguay, expects a raise in interest rate at least more time this year to prevent over-inflation. It is said that the labour market is getting too tight so the Bank of Canada may be forced to raise the interest rates so that inflation will not occur as high. Since the beginning of the year, the interest rate has already been increased five times to 4.25%. It is expected that the rate will go well beyond 4.25% if the current trends continue in Canada.
Relation to aggregate demand and supply, full-employment rate of GDP
I believe that it is a positive thing that our economy is experiencing this boom. Canada is making more use of its resources especially with the increase of the Canadian dollar and a decrease in the unemployment rate. As these trends continue, it seems that we are nearing the level of full-employment GDP, though the true definition by the book cannot be reached in reality.
Full employment will cause the current dollar value of GDP to go up and inflation may occur. The reduction in aggregate demand would be necessary to reduce the level of aggregate demand and still maintain full employment (known as the inflationary gap). However, Canada’s possible inflationary gap could be eliminated through a reduction in spending or an increase in taxes. I think that one solution the government can do is increase the interest rate of borrowing. However, if interest rates are raised too high, foreign investment may be encouraged and our Canadian dollar with GDP may decrease. It will be interesting to see how the federal government will intervene economically in effort of stabilizing its economy.
Source: www.cbc.ca
On Friday April 20, the Canadian dollar closed just slightly above 89 cents US as commodities strengthened. The rise of the Canadian dollar is up two-fifths of a cent, which is the highest level in five months. According to Statistics Canada, the national workforce increased by 50,000 workers in March compared to an increase of only 24,500 in February. The increase was more than double the predicted amount of 22,000. The unemployment rate dropped to the lowest since 1974, and the Canadian dollar rose most significantly.
Currently one American dollar buys $1.125 Canadian. Bank of Canada Deputy, Pierre Duguay, expects a raise in interest rate at least more time this year to prevent over-inflation. It is said that the labour market is getting too tight so the Bank of Canada may be forced to raise the interest rates so that inflation will not occur as high. Since the beginning of the year, the interest rate has already been increased five times to 4.25%. It is expected that the rate will go well beyond 4.25% if the current trends continue in Canada.
Relation to aggregate demand and supply, full-employment rate of GDP
I believe that it is a positive thing that our economy is experiencing this boom. Canada is making more use of its resources especially with the increase of the Canadian dollar and a decrease in the unemployment rate. As these trends continue, it seems that we are nearing the level of full-employment GDP, though the true definition by the book cannot be reached in reality.
Full employment will cause the current dollar value of GDP to go up and inflation may occur. The reduction in aggregate demand would be necessary to reduce the level of aggregate demand and still maintain full employment (known as the inflationary gap). However, Canada’s possible inflationary gap could be eliminated through a reduction in spending or an increase in taxes. I think that one solution the government can do is increase the interest rate of borrowing. However, if interest rates are raised too high, foreign investment may be encouraged and our Canadian dollar with GDP may decrease. It will be interesting to see how the federal government will intervene economically in effort of stabilizing its economy.
posted by alvincheung at
6:40 PM
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