Review of two relevant economics articles

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BAM101: Business News Research Assignment Fall 2015

Student Name: Omar Alazzawi

Student Number:

r!"ess!r#s Name: $a%id &ing

'!urse '!de(Secti!n: BAM101

$ate: N!%ember 12th) 2015



*!+ic ,1:

*itle !" Article:

Commodities keep falling as major mining projects come into production

Summar- !" Article:

The article discusses the different factors involved in the changes in commodity prices

that took place in the past 5 years. The article highlights that prices of most

commodities have halved since they peaked between 200 and 20!!. The writer

attributes this price change to both demand and supply side factors. The article uses

iron ore as an e"ample to portray supply side changes as mega projects in #ustralia

and $ra%il are about to open their doors for output. Those mega mining projects were

encouraged and master planned during cycle periods when prices of iron were

skyrocketing& which attracted industry stars like 'ina (inehart& of #ustralia& and )ale& of

$ra%il& to invest to e"pand production. The recent price changes are only a *digestion+ of

the massive e"pansion in output ,-c'ugan& 20!5.

/n the demand side& the writer believes that demand for commodities have faded due

to slowing growth in China& the worlds largest consumer of commodities& and globally&

in general. 1ading demand is also accompanied by a down pressure from rising 34

value.

Business *!+ic Anal-sis:

'ha+ter .: /c!n!mics: /%!l%ing S-stems: !w $emand and Su++l- .nteract t!

$etermine rices) age 223



/n the supply side& e"pansion in production boosted by new projects in #ustralia and

$ra%il will put a downward pressure on the price of ron in the form of a supply curve

shift to the right6 that is& at the same price level& more iron is being supplied.

/n the demand side& a shift in the demand curve for commodities to the left would pin

prices lower. The article discussed two factors that would cause such a shift and are

slowing demand from resources7hungry countries and a rising 3 4ollar value. The

slowing demand is a result of 8uickly7slowing growth in economic activity in China and

resources7thirsty countries. /n the other hand& a rising value of the 34 means that it

costs more for countries other than the 3 to purchase resources& because their local

currency now buys less 8uantity of the same commodity.

The overall effect is that commodity prices fell sharply due to a combination of slow

global demand& a rising 34 and high output levels from miners.

Business *erm:

Su++l-: The 8uantity of a good or a service that businesses will make available at

various prices. ,The 1uture of $usiness& 20!9

$emand: The 8uantity of a good or a service that people are willing to buy at various

prices. ,The 1uture of $usiness& 20!9

Su++l- 'ur%e: a graph showing the 8uantity of a good or a service that a business will

make available at various prices. ,The 1uture of $usiness& 20!9

$emand 'ur%e: a graph showing the 8uantity of a good or a service that people are

willing to buy at various prices. ,The 1uture of $usiness& 20!9



*!+ic ,2:

*itle !" Article:

$ank of Canada cuts key rate to 0.5; as oil plunge takes toll on economy

Summar- !" Article:

The article informs the reader about the $ank of Canadas move to cut the target rate by

a 8uarter percent to 0.5;& after staying at !; since 20!0. The article states that the

reason for this rate cut is the plunge in crude oil prices and its adverse effect on

inflation& consumer and business spending& and corporate profitability. The article also

mentions how this rate cut instantly influenced the stock market& the Canadian dollars

e"change rate against other currencies and the yield on the governments bonds.

n addition& the forecasted growth for the Canadian economy was cut from 2.9; to

!.5;& and the forecasted inflation rate fell below the $ank of Canadas !7<; target. The

article mentions that this is primarily due to the central banks faulty assumption of crude

oil prices of =5> per barrel& and even faultier readjustment to ?0> per barrel.

t is also outlined that corporate spending in the oil industry will drop by <0; and that a

multitude of projects will become unprofitable if the plunge in oil prices will persist. /n a

brighter side& the central bank believes that growth for the second part of the year will

be stronger than usual due to a global stimulation caused by oil prices and a lower

e"change rate that will boost non7oil companies profit that benefit from e"porting to the

3.

Business *!+ic Anal-sis:



'ha+ter ..: 4nderstanding M!ne- and the 'anadian Financial S-stem: ages

52

t is key to understand the significance of the oil industry to the Canadian economy. The

oil industry employs thousands of people in @estern Canada& and adds billions of

dollars to the national spending. The plunge in oil prices applied a deflationary pressure

on the Canadian economy due to lower spending and lower profits ,or more losses

from oil businesses& lost income from job layoffs& and lower government revenues. This

leads to a move on the business cycle towards a trough or a recession.

The $ank of Canada has many tools to stimulate the economy and chose to use

monetary. #lthough the move to cut interest rate signals a loss of momentum in the

Canadian economy& it is meant to make borrowing for corporations cheaper& increase

the money supply& and stimulate consumer spending. The overall effect is a stimulation

for the economy and a guard against deflation and its adverse effects.

#s for the slide in e"change rate of the Canadian 4ollar against major currencies& the

increased money supply dilutes the value of the loonie by making it less scarce of a

resource. This slide can be useful for non7oil e"port7based businesses as it will increase

profitability by simple math.

Business *erm:

M!netar- !lic-: The measures taken by the $ank of Canada to regulate the amount

of money in circulation in order to influence the economy ,The 1uture of $usiness&

20!9.



*arget "!r the !%ernight rate: The signal to the major participants in the money market

as to what the bank of Canada is aiming for when participants borrow and lend one7day

funds to each other ,The 1uture of $usiness& 20!9.



ers!nal .m+act

choose the two topics or concepts that dominated the two articles because

liked their relevance to the Canadian economy and my personal financial status

as a Canadian consumer. also enjoyed researching and e"ploring economic

principles& like demand and supply& that are linked to the behavior of humans on

a mass level.

have learned that all economic concepts are interrelated and interact with each

other on a long term basis. #n e"ample that ties the first and the second article

together& for instance& would be e"amining the effect of raising interest rates in

the 3 on ron prices6 higher interest rates slows money circulation& adds

deflationary pressure which lowers demand for commodities& increases the

34s value which makes iron more e"pensive for other countries and therefore

lowers the price of iron in general.



6!r7s 'ited

McGugan, I. (2015, November 11). Commod!e" #ee$ %a&&ng a" ma'or mnng

$ro'ec!" come n!o $roduc!on. oron!o, n!aro, Canada. *e!reved %rom

+!!$--.!+eg&obeandma&.com-re$or!/on/bu"ne""-ndu"!r/ne"-energ/

and/re"ource"-commod!e"/#ee$/%a&&ng/a"/bg/mnng/$ro'ec!"/come/n!o/

$roduc!on-ar!c&e2721760-

unn, G. (2015, anuar 21). an# o% Canada cu!" #e ra!e !o 0.75 a" o& $&unge

!a#e" !o&& on econom. oron!o, n!aro, Canada. *e!reved %rom

+!!$--bu"ne"".nanca&$o"!.com-ne"-econom-ban#/o%/canada/cu!"/

n!ere"!/ra!e/a"/o&/$&unge/!a#e"/!o&&/on/econom

The Future of Business. (2014). oron!o, n!aro, Canada Ne&"on duca!on 8!d.

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