Macro Economics GDP

Question: Discuss about the Macro Economics GDP. Answer: Introduction: This report will analyse and evaluate the trends in Canadian GDP, factors affecting GDP of the country, its future prospects and impacts. Gross Domestic Product Gross domestic product (GDP) is defined as the monetary value of the final goods and services which are produced within a country's boundaries in a particular time period. Trends of Canadian GDP: (Source: Trading Economics, 2016) Interpretation: The above chart depicts that GDP of Canadian economy over the period of 2006 to 2015. GDP decreased in 2014 i.e. C $1785.39 as compared to 2012 and 2013. It indicates that GDP has declined as compared to the last two years. There are various factors, which affects the GDP such as interest rate, exchange rate, consumer confidence, foreign direct investment and banking sectors (Coyle, 2015). Factors affecting the GDP There are several factors that can influence the economic growth which are as followed: Interest Rates: Interest rate affects the GDP of the economy. The reason behind that is the current interest rate is 0.5% that is on the lower side. It indicates that spending power of people will be increased. Reason for that is consumers can get an easy loan from the bank at the low-interest rate. In consequence, customers increase their disposable income (Sachs, 2011). Furthermore, firms will increase their investment in the goods and services due to easily borrowed loan from the bank. Thus, it can be said that flow of money will be raised in the economy, which negative impacts on the value of money. As a result, inflation will be raised that will decline the GDP of the economy (Shah, et al., 2014). Consumer Confidence Consumer and business confidence is the important factor that influences the economic growth. For example; if the consumers are confident about the future growth then, they will be encouraged to borrow and spend more money. This leads to increase in the flow of money in the market. Thus, it can be said that it will have favorable impact upon the GDP of the economy. However, if they are pessimistic then, they will save and reduce spending. It will lead to decrease in the flow of money, so the economic growth will be unfavorably affected (Sachs, 2011). Foreign direct investment: It is explained that foreign direct investment also affects the GDP of the economy. Since when FDI declines; then it will decline the supply of money in the market. Hence, export will be competitive and import will be expensive due to decline in the investment. As a result, it will have negative impact on the growth rate of the economy (Jidoud, 2015). Exchange Rate: The exchange rate also affects the economy growth rate of the country. It is because; the current exchange rate is 1 CAD = US$ 0.774692 that is lower. Hence; it can be said that lower exchange rate declines the growth rate of the economy due to the decline of the money supply in the market. As a consequence, it is stated that declining exchange rate is the crucial factor that declines the GDP (Fukuda-Parr, et al., 2015). Banking Sector Banking sectors also influence the GDP of the economy. Because of this, bank declines their lending power due to the insufficient reserve fund. Hence; money flow will decline in the economy that creates a negative impact on the firms and consumers and also leads to decline in the investment and spending power. As a result, GDP of the country will be declined (Fan, et al., 2012). Future impact on the GDP: (Source: The World Bank, 2016) Interpretation: From the chart, it can be said that GDP of CAD (C$) is likely to increase in the future. As per the above forecast table, it can be said that existing GDP is C$1785 that will be increased C$2165 in 2020. Therefore, it can be said that some factors are affected by the GDP of the Canadian economy, which is discussed below: Value of Exchange Rate The value of Canadian dollar will be raised in the future due to more demand for Canadian dollar, which impacts on the growth rate of GDP of the Country. Furthermore, revenue generation from the exports would be increased and imports will be cheaper. Besides this, inflation will decline due to decrease in the value of money in the market. Consequently, it can be said that economic growth will be enhanced (Dobbs, et al., 2015). Interest rate: (Source: Trading Economics, 2016) From the above table, it can be said that interest rate will be increased from 0.5% to 2% due to increase in the money supply in the market. Thus, purchasing power will be reduced due to the increasing interest rate. As a result, GDP will be stable in the market (Coyle, 2015). Unemployment Rate: (Source: The World Bank, 2016) The unemployment rate will also influence the GDP of Canada economy. For example; the unemployment rate is 7.2% in 2016 that indicate the purchasing power of people will be reduced. This will lead to decrease in the money supply in the market. Simultaneously, the unemployment rate is expected to decline by 2020 i.e. 6.7%. As a result, it enhances the GDP of the Canadian economy (Acemoglu and Robinson, 2012). References Acemoglu, D. and Robinson, J. A. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. UK: Profile Books. Coyle, D. (2015). GDP: A Brief but Affectionate History. USA: Princeton University Press. Dobbs, R., Manyika, J. and Woetzel, J. (2015). No Ordinary Disruption: The Four Global Forces Breaking All the Trends. USA: Public Affairs. Fan, J. P., Titman, S. and Twite, G. (2012). An international comparison of capital structure and debt maturity choices.Journal of Financial and quantitative Analysis,47(01), 23-56. Fukuda-Parr, S., Remer, T. L. and Randolph, S. (2015). Fulfilling Social and Economic Rights. UK: Oxford University Press. Jidoud, A. (2015). Remittances and Macroeconomic Volatility in African Countries. USA: International Monetary Fund. Sachs, J. (2011). The End of Poverty: How We Can make it Happen in Our Lifetime. UK: Penguin. Shah, R., Gao, Z. and Mittal, H. (2014). Innovation, Entrepreneurship, and the Economy in the US, China, and India: Historical Perspectives and Future Trends. USA: Academic Press. The World Bank (2016). GDP. Retrieved from https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG Trading Economics. (2016). Canada GDP. Retrieved From https://www.tradingeconomics.com/canada/gdp-growth