Canadian Economy

1. The natural rate of unemployment entails the unemployment rate that exists in a healthy and growing economy. It involves structural and frictional unemployment and excludes the cyclical type of unemployment. It is primarily related to two critical concepts that include; potential real GDP and full employment. A country is at full employment when the natural rate is equal to full employment. At this point, the rate of real GDP equates to the potential real GDP. At a point of full economic employment, the unemployment rate is below the natural unemployment rate, and the GDP potential is less than real GDP.

The rate of unemployment differs across economies. The rate of economic growth and the county’s GDP are critical factors that determine the rate of unemployment. The United States has a higher GDP compared to Canada, thus different rates of natural unemployment. US fiscal and monetary policies are more vibrant, leading towards full employment, therefore low unemployment rates.

2. CPI entails changes in prices as experienced by Canadians based on 2002 as the base year. CP1 measures the price fluctuations by comparisons, through time, the cost of baskets of services and goods with a base year.

The average price of commodities is measured against an established base year, and the price basket of 2002 is equated to 100. The rate of inflation is critical in the determination of the base year. High levels of inflations or deflations will lead to a change of the base year.

3. The bank of Canada has a critical mandate in the control of money supply in the economy. The bank is mandated in the formulation of monetary policies ideal that directly controls the rate of inflation in the economy. Over the years, Canada bank has a target of maintaining inflation rates at 2% that have been achieved through bank rates, among other monetary policies?

In 2019 the inflation rates in Canada were recorded at 1.95% within the Canada inflation rates. Monetary policies are critical in the achievement of correct interest rates that would facilitate economic development.