Question

discuss what would happens to the economy of Canada if the current pandemic continues for a long time and many business bankrupt and close permanently inyour explanation refer to the labour market, production fiction and LRSA

production function

Answer 1

            The impact of the current crisis caused by the Covid-19 pandemic can be seen all over the global economy and in North American continent to be particular. The countries of North America are the worst hit along with the European nations. It is seen that the effects have already pulled the Canadian economy in to a recessionary phase. Let us first consider the effects it has already caused before discussion on the future effects if the situation continues

· Canada has recorded a highest fall in the GDP [2.6%] in its history as per the latest statistics, with a 9% dip in the previous few months alone

· The employment growth has seen a decline of 5.3% in the recent times.

· Almost one-fifth of the population have availed of an emergency fund established by the government to counter the effects caused by the pandemic which is expected to increase further

· The estimates of the Big five banks is that Canada’s economy would further shrink by 23% in the next quarter.

· Various measures like decrease of interest rates and sales of government bonds have been initiated to contain the effects and maintain liquidity in the economy.

· The exports have weakened, investments have reduced and production have been stalled in the mean time which would lead to a further decrease in the GDP rates in future.

· Nearly 2 million jobs have been lost in the month of April alone.

Future effects of Covid-19 on Canadian economy

· The employment potential, banking sector and investment patterns have been hit the most by this pandemic.

· With decreasing labour participation, the GDP rates are expected to decline further which would cause a decline in the export potential and domestic consumption patterns.

· The inequalities in the Canadian labour market are expected to widen if the situation persists.

· The banks have been encouraged to give loans at a reduced rate which is expected to cause a rise in the ‘bad loans’ of the banks and would further destroy the banking system.

· The Long Run Aggregate Supply in the economy is expected to fall due to the reduction in the labour force participation and decline in the investment patterns.

· As the fiscal and monetary measures are expected to give more preferences to the health sector in the near future, other sectors may see a decline in the shares.