Canada and the United States Had Approximately the Same Aggregate

question 32

Essay

Canada and the United States had approximately the same aggregate unemployment rates from the 1920s to 1981. In 1982, a two percentage point gap appears, which has roughly persisted until today, with the Canadian unemployment rate in the third quarter of 2002 being 7.6 percent while the American rate stood at 5.9 percent in the same period. Several authors have investigated this phenomenon. One study, published in 1990, contained the following statement: "It is a clichė that, as compared to analysis in the physical sciences, economic analysis is hampered by the lack of controlled experiments. In this regard, study of the Canadian economy can be much facilitated by comparison with the behavior of the US …" Discuss what the authors may have had in mind. List some potential threats to internal and external validity when comparing aggregate unemployment rate behavior between countries.

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Definitions:

Equilibrium Price

The market price at which the quantity of an item supplied is equal to the quantity demanded, leading to market stability.

Equilibrium Quantity

The quantity of a good or service at which demand equals supply, leading to a stable market condition.

Supply Increases

A situation where the quantity of a good or service that is available for sale rises.

Consumer Income

The collective income of consumers, which influences their capacity to buy products and services.