Financial Cycle and Macroeconomics Statistics

Question: Discuss about the Financial Cycle and Macroeconomics Statistics. Answer: Introduction: As opined by Mankiw, (2014), a trade deficit in the country occurs, when the net imports of the country is more than the net exports. Trade balance poses both positive and negative effects on the country, but it depends upon the duration and the size of the deficit that has been made. Trade deficit is also known as current account deficit, which acts as both beneficial or detrimental for the economy. Canadas merchandise trade deficit had rose to a record of $4.0.8 billion in September, 2016, due to the large shipment of equipped destined for an oil field off the coast of Newfoundland. The trade deficit was beyond the expected trade deficit of $1.7 billion as was opined by the royal bank of canada. According to the trade data fro the month of august, the deficit was only about $1.99 billion (Mackrael, 2016). The imports of the country has surged by 4,7% in September to $47.63 billion on a sharp Canadian imports surged 4.7% in September to C$47.63 billion on a sharp increase in the industrial machinery, equipment and parts sector. Statistics Canada attributed the gain to a large import of a module from South Korea, which it said was destined for the Hebron offshore oil project in the east coast province of Newfoundland and Labrador. Import volumes were up 2.3% in the month, the data agency said (Buckley, Pass Prescott, 2016). Meanwhile, exports fell down to 0.1% to reach C$43.55 billion in September, marking the fourth straight monthly gain. On a volume basis, exports were down 0.8% from the previous month. Higher exports of aircraft and other transportation equipment and parts were offset, in part, by lesser exports of metal and non-metallic mineral products, Statistics Canada said. Except energy products, exports reduced to 0.2% in September (Mackrael, 2016). Trade deficits in a country poses both advantage and a disadvantage for the economy, which depends upon the duration and size of the deficit. Trade deficit affects the economic growth and stability of an economy as a hindrance. There are loss of jobs as imports are more than the exports made vy the economy. There is a decline in the demand for the currency of the economy, which needs various exchange rates adjustments to be implemented (Beladi Oladi, 2014). A downward pressure on the currency of the country would make the prices of the goods and services of the country to be denominated , thereby, making them expensive, that could lead to inflation in the economy. The only positivity attached to the trade deficit is only with regards to the inflow of foreign direct investment in the economy (Borio, 2014). Figure 1 : Imbalance Of The Economy (Source : Russell Russell, 2014) In figure 1, M and X are the import and export curve of the country. Trade balance occurs at point where the export and the import curve intersect, thereby resulting into a stable quantity of q1. With the rise in the import demand of the economy, the current situation of Canada is at where the quantities imported is QM and quantity exported is QX, thereby leading to a situation of trade deficit in the economy. Personal interest The effect of trade deficit has affected one of my relatives who has been in the export business for vehicle equipments. Due to the offset of exports of the aircraft and transport equipments products by the lesser exports of metal and non metallic mineral products in Canada, loss has been experienced by him. This loss needs lots of sustainable measures to be taken in order to stabilise the situation. Tension between self interest and social interest Exporters of the economy should implement various strategies and policies that would help them in raising the bar of their exports and thereby narrow the trade deficits. With the rise in trade deficits there is a fall in the exchange rate of the country, which would make the exports cheaper for the country and the imports costlier, yet, the case would not always be fruitful. Hence, there must be strategies implemented by the government in order to attain the balance structure for the country. Reference Beladi, H., Oladi, R. (2014). On Offshoring and Trade Deficit.Review of Development Economics,18(3), 517-523. Borio, C. (2014). The financial cycle and macroeconomics: What have we learnt?.Journal of Banking Finance,45, 182-198. Buckley, P. J., Pass, C. L., Prescott, K. (2016).Canada-UK bilateral trade and investment relations. Springer. Mackrael, K. (2016). Canadas Trade Deficit Swells in September. WSJ. Retrieved 20 November 2016, from https://www.wsj.com/articles/canadas-trade-deficit-swells-in-september-1478266141 Mankiw, N. G. (2014).Principles of macroeconomics. Cengage Learning. Russell, S., Russell, W. H. (2014). Tag Archives: trade deficit.Image, 6.