Tutorial 5 Norrie Article (II) Study Questions

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29 Mar 2012
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Study Questions for Norrie’s “The Modern Era: Since 1945”
1)In the first portion of this article, Norrie examines the general economic
performance of Canada from 1945 to 1993. What were the four features of Canada’s
economic record in this time period?
Significant growth
oCurrent dollar GDP 1947-1995; 55 times
oReal GDP: 1947-1995: 6.6 times
oPopulation: more than doubled (12.6 to 29.6 million)
oGDP per capita tripled
Ongoing structural change, shares of industries
oSteady decline of agriculture, 50% in 1881, 6-8% in 1990
oIncrease of service industries, 20% in 1881, 70% in 1990
oManufacturing peaked in mid 1950s but declined to post depression level,
second IR
2 periods of development
oEnd of war to early 1970s
Growth and prosperity
Real GDP grew 5% annual compounded
Per capita: 2.8 times
Unemployment fluctuated, 4.5-5 percent
o1973 oil shock to the mid 1990s
Economic challenge
REAL GDP grew 2.9%
Per capita: 1.7 times
Unemployment in upward trend
High rates of inflation
Stagflation, against usual economic thinking
Shift in attitudes to economic management
oGovernment’s role questioned, don’t know what to do because of
stagflation
oGreat depression and WWII government’s greater role doesn’t work
anymore blaming government for huge deficits and debts
oEconomic difficulties after 1973
oDirection and regulation seemed as ways to distort economy
oCutting back existing social programs to fit budgets, privatization and
deregulation
oLast 2 years, goes back to Keynes business history is cyclical
2)What were some of the features of the international economic environment in which
Canada operated since 1945?
Post war concerns were easily resolved, worries about stagflation in North America
never emerged, and badly damaged European economies were quickly recovering
U.S. gave loans and export credits to European countries, Marshall Plan ($9.4 b)
Resurrecting international exchange
oBretton Woods 1944, remove exchange controls, fix currency on
USDgold
oIMF established to help temporary difficulties
oGATT, reducing trade barriers
oTrade increased faster than production
Most international trade was among industrial nations, in
manufactured goods
oWorld trade grew 6 fold between 1948 and 1973, 7% annual
CANADA depend on trade as it’s an export oriented nation
Goods are restricted and limited during the war, nothing to spend the money
on. Peace time massive consumer spending
Europe’s economic integration, OEEC, European Economic Community (EEC)
Capital movements complemented trade
oPortfolio investment continued
oDirect investment of MNCs
1973- serious, widespread, and stained deterioration in the macroeconomic
performance of the western industrial nations
oInflation+unemployment stagflation
oCrude oil prices
Rise of raw material prices, terms-of-trade in favour of primary product producers
oOECD import raw materials on net basiscommodity price boom meant a
reduction in aggregate real incomes and fall in spending economic
slowdown
3)What two primary factors account for a decrease in the growth rates of the
Canadian economy after 1973?
Productivity slowdown
Argued that NOT capital and labour inputs were growing more slowly
Effectiveness of labour and capital inputs are being combined was declining
Rise in oil prices shift away from energy and capital and toward labour in many
production processes
High productivity primary and manufacturing pursuits to lower-productivity
services dragged down aggregate-growth rates
Greater emphasis in environmental control resulted in lower measured output
increases
Growth of underground economy
Decline of infrastructure spending after 1960s