COMM 103 Chapter Notes - Chapter 2: Gross Domestic Product, Financial Consumer Agency Of Canada, Openmarket
26 Jun 2018
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(CHAPTER 2) The Canadian Economic Environment
TEXTBOOK SUMMATIVE
The chapter covers the following concepts:
●Canada and its Economic System
●Key Economic Influencers
○Contributing Factors to Economic Development
○The Underlying Economic Model
○Canada: A Mixed Economic System
●The Economy in Simple Terms
●Managing the Movement in the Economy
●Trends Impacting the Canadian Market
●Managing in Challenging Times
○Understanding Competitive Models
○Sensing Market Change
●Management Reflection - Analyzing Market Trends
CANADA: A PETRO ECONOMY
Due to Canada’s growing dependency on the energy sector to drive its economy, it has been
referred to as a “petro economy”. This is because energy account for 23% of the companies that
make up the TSX index, with approx. another 20% (materials, utilities, and industrials) of companies
comprising the TSX being directly prone to oil price disturbances. As the price of crude oil and
commodities goes up, so too does the value of the TSX and the value of the CDN dollar.
Furthermore, during periods of strong global demand for energy and the corresponding prices that
result from it, Canada is able to benefit from strong trade surpluses. But it should be noted that
energy is not the sole determining the factor in whether Canada has a balance of trade surplus or
deficit.
●TRADE SURPLUS = value of imports - value of exports
CANADA AND ITS ECONOMIC SYSTEM
G7/8 is a quasi-organization comprising the world’s major fully developed economies, which
consists of USA Japan, Germany, Great Britain, France, Italy, and Canada. IN 2006, the G7 transitioned
to the G7/8 with the inclusion of Russia into its membership. Heads of these countries meet at least
once annually to discuss major economic, political, and societal issues challenging the global
marketplace.
●Recent meetings have also resulted in representatives of major developing economies (such
as China) attending at least part or all of such summit meetings.
●Though it is still relevant, the G7/8 is seeing its overall global economic influence
diminishing, as the larger G20, consisting of the G7/8 countries, as well as representatives
from developing economies, is anticipated to become the more policy-influencing
organization with respect to global economic decisions.
Canada is one of the most fully developed and diversified economic systems in the world. Its
economic growth is owed to its abundance of resources, skilled workforce and technology base;
which has allowed the nation to transition from an agricultural economy to a diversified system with
products/services sought by global markets. Key factors to remain competitive and resilient as an
economy include:
●Productivity gains
●Strong business investment
●Technological investment
●Moderate wage increases
●Favourable current exchange rate
Specific products that drive the Canadian economy include:
●Crude oil
●Petroleum gases
●Agricultural products (wheat canola, etc)
●Metals (gold, nickel, etc)
●Minerals (sulphur, potash, etc)
In terms of the manufacturing industry:
●Telecommunications
●Aerospace
●Forestry related products
●Energy support products
●Automotive sector
Core to the economic activity of Canada, is its trading relationship with USA, which is the nation’s
largest trading partner (accounts for approx 79% of external trade volume and 50% of import volume.
KEY ECONOMIC INFLUENCERS
The two factors that determine whether an economy will prosper or struggle are:
1. Contributing Factors to Economic Development
2. Economic Model that governs overall activity
CONTRIBUTING FACTORS TO ECONOMIC DEVELOPMENT
Integral aspects to ensure economic growth and stability include:
●Ability to support and promote current and future economic activity
●Ability to provide a stable environment for economic growth
●Ensure that the required business and economic management systems can support an
organized approach to economic development
COMPARATIVE ADVANTAGE refers to the ability of a country to produce or supply goods or services
at a lower cost than other countries or to possess resources or unique services that are unavailable
elsewhere
●EXAMPLE, Canada is able to maintain a comparative advantage due to its strong natural
resource base, within the commodities and energy market sectors. It is because of this trait
they are able to enjoy things like
○An acceptable national and provincial debt limit
○Federal and provincial governments working to reduce federal debt loads (but
additional debt was added because of the financial sector and economic recovery
programs that were established in 2008-2010)
○An efficient and techno-savvy bank system
○Well managed inflation levels (due to the monetary policies and actions put in place
by the BOC)
○Strong, fair, and equitable legal system
○FDI of $683 billion a 9% increase ove 2012 and up 37% over 2007 inflows.
FOREIGN DIRECT INVESTMENT (FDI) occurs when a company or individual from one country makes
an investment into a business within another country. This investment can reflect the physical
ownership of productive assets or the purchase of a significant internet in the operations of a
business.
THE UNDERLYING ECONOMIC MODEL
Three fundamental market composition principles
1. The law of supply and demand refers to ability of the market, independent of external
influences, to determine the price for which a product or service will be bought and sold. It
defines the relationship between quantity demanded and quantity supplied
○DEMAND reflects the number of purchasers who are willing to pay for a product or
service at various price points. It can be perceived as elastic or inelastic, depending
on the movement in the quantity demanded for the various price points at which
Document Summary
Due to canada"s growing dependency on the energy sector to drive its economy, it has been referred to as a (cid:440)petro economy(cid:441). This is because energy account for 23% of the companies that make up the tsx index, with approx. another 20% (materials, utilities, and industrials) of companies comprising the tsx being directly prone to oil price disturbances. As the price of crude oil and commodities goes up, so too does the value of the tsx and the value of the cdn dollar. Furthermore, during periods of strong global demand for energy and the corresponding prices that result from it, canada is able to benefit from strong trade surpluses. But it should be noted that energy is not the sole determining the factor in whether canada has a balance of trade surplus or deficit. Trade surplus = value of imports - value of exports.
