the state of the Canadian economy in terms of unemployment, inflation, wages and interest rates. Using...

the state of the Canadian economy in terms of unemployment, inflation, wages and interest rates. Using the material that we have covered in class thus far, particularly material related to labour markets, discuss what you believe to be occurring in the Canadian economy. Answer the Following

Why are the inflation rate and unemployment rate moving in the directions that they are?
How do inflation and unemployment relate to the interest rate?
What is the relationship between wage growth and inflation?

Solutions

Expert Solution

Overall Canadian economy can be said to be performing well with some issues that need attention of the government to ensure that the economy remains resilient to uncertain and unfavorable economic events in future.

The unemployment rate rose slightly to 5.6 percent in February of 2020 from 5.5 percent in the previous month performing better than market expectations. We can say that unemployment is not a huge issue in the Canadian economy because of low population. Labor force participation rate was at 65%.

The annual inflation rate in the country went up to 2.4 percent in January 2020 from 2.2 percent in the previous month. Thus, inflation can also be said to be under control.

Inflation rate is inversely related to interest rate. Therefore if the inflation rate breaches the upper limit the Central Bank increases the interest rate to contain inflation.

Unemployment rate is also inversely related to interest rate. If unemployment rate is too high, Central Bank reduces the interest rate and eases the money supply in the economy.

Wage growth is directly related to inflation. If wage growth is higher, inflation rate also moves up and vice-versa.

Rahul Sunny answered 1 week ago

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