eco trends Essay

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Economic trends
Jessica Thompson
Macroeconomics
Thomas Edison State College
11/24/13

Economic trends:
The united states is the largest economy in the world while Canada which is a member of the G7 a group of the 7 wealthiest nations as the united states also performs comparably well in terms of all the economic variables. This paper considers analyses both country’s economic by looking into the their GDP, growth rate, exchange rate, inflation rate, interest rate on short term government debt, unemployment rate and the deficit rate by making comparisons and drawing similarities
GDP and GDP Growth rate
Data shows that the United states GDP as measured by real GDP was $15.47 trillion in 2012 while Canada had a real GDP of $4.1 trillion. This shows that the United States is the larger of the two economies
Diagram 1: United States and Canada real GDP

Data source: http://research.stlouisfed.org/fred2/
As diagram shows, both economies GDP grew in 200 and 2012 with the United States GDP increasing from $15.05 trillion to $15.47 trillion while Canada’s GDP increased from $4.05 trillion in 2011 to $4.1trillion in 2012
Diagram 1: United States and Canada GDP percent change

Data source: http://research.stlouisfed.org/fred2/
In terms of economic growth, the united states economy grew by 1.8% in 2012 compared with a growth rate of 1.3 for Canada while in 2011 the united states economy grew by 2.5% compared with Canada’s growth of 2.0% while during the world financial crisis in 2008/2009 Canada’s economy shrank by more than 4% compared with a negative growth of 2.8% for the united states economy. These facts show that the United States economy’s performance has been better compared with Canada in the last ten years and depicted by the graph in diagram 2 above.
Exchange rate
Exchange rates are used to show how much goods and services exchange between the two countries and both economies use the flexible exchange rate mechanism. Results show that the exchange rate in terms of the U.S dollar to the Canadian dollar is 1.05 that is $1.05Canadian dollar/$ while this figure was $1.053C/$ in 2012 showing that the united states dollar has been weakening slightly against the Canadian dollar. This is an advantage to the United States as its exports will be cheaper and therefore it will be able to increase its balance of payments and reduce its trade deficit against Canada.
Inflation rate
Inflation is measured in terms of percentage change in the consumer price index and in 2012 the united states consumer price index was 232.415 in 2013 and 229.604 in 2012 compared with a price index of 232.8 in 2013 and 210.3 in 2012 for Canada which means that the cost of goods in the united states relative to the base year of 2005 was greater than Canada. The change in CPI is used to indicate the rate of inflation and in this case Canada’s CPI increased to 232.8 in 2013 from 210.3 in and 207.4 in 2011 giving an inflation rate of 0.01392 or 1.392% in 2013 and 0.01496 in 2012 which means that prices in Canada increased by 1.392% in 2013 and 1.496% in 2012. In the United States, CPI increased to 232.415 in 2013 from 224.935 in 2011 to 229.604 in 2012 which gives an inflation rate of 1.146% for 2013 and 2.076% in 2012. This means that prices in the United States on rose on average by 2.1% in 2012. The data therefore means that prices of goods and services in the United States have been increasing more on average compared with Canada. According to Bernanke & Frank 2001, “in low-inflation industrial economies like the United States today, inflation tens to inertial, or slow to adjust to the changes in the economy. The inertial behavior reflects the fact that inflation depends in part on people’s expectations on future inflation, which in turn depend on the current experience with inflation” (p.753)
Diagram 3: united States and Canada inflation rate

Data source: World economic outlook
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