Study guide
2.1 Economics Foundations & Measuring Economic Growth
Canadian Securities Course CSC
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1 Introduction & Exam Overview
About the CSC Exams
2 Chapter 1: The Canadian Investment Marketplace
1.1 The Canadian Securities Industry & the Investment Dealer's Role 1.2 Financial Intermediaries: Banks, Trusts, Credit Unions, Insurers & Pension Funds 1.3 Financial Market Trends 1.4 Investment Capital, Financial Instruments & Financial Markets 1.5 Canadian Exchanges, ATSs, Dark Pools & the Order Protection Rule 1.6 Canadian Securities Regulators, the CSA & CIRO 1.7 Investor Protection: OSFI, CIPF and CDIC 1.8 Ethics, Standards of Conduct & the Client Focused Reforms 1.9 Conflicts of Interest, Complaint Handling & Remediation
3 Chapter 2: The Economy
2.1 Economics Foundations & Measuring Economic Growth 2.2 The Business Cycle & Economic Indicators 2.3 Inflation & Interest Rates 2.4 The Labour Market & Unemployment 2.5 The Bank of Canada & the Inflation-Control Target 2.6 Implementing Monetary Policy: The Operating Band, Market Operations & Transmission 2.7 Fiscal Policy, Deficits & the Challenges of Government Policy 2.8 International Finance & Trade: The Balance of Payments and the Canadian Dollar
4 Chapter 3: Features and Types of Fixed-Income Securities
3.1 The Fixed-Income Marketplace, Bond Terminology & Security 3.2 Protective Covenants, Retirement Provisions & Extendible/Retractable Features 3.3 Government of Canada Securities: T-Bills, Marketable Bonds & RRBs 3.4 Provincial & Municipal Debt and Strip Bonds 3.5 Corporate Bonds, Credit Spreads & Bond Ratings 3.6 Money Market Instruments, Floating-Rate Notes & International Bonds 3.7 Other Fixed-Income Securities & Reading Bond Quotes
5 Chapter 4: Pricing and Trading of Fixed-Income Securities
4.1 Bond Pricing, Price–Yield Relationships & Accrued Interest 4.2 Yield Calculations & Return Measures 4.3 The Term Structure of Interest Rates & Yield Curve Theories 4.4 Fundamental Bond Pricing Properties: Volatility Rules, Duration & Convexity 4.5 Bond Market Trading & Bond Indexes
6 Chapter 5: Common and Preferred Shares
5.1 Common Shares: Ownership Rights, Voting & Restricted Shares 5.2 Dividends, DRIPs, Stock Splits & Consolidations 5.3 Preferred Shares: Features, Cumulative Dividends & Taxation 5.4 Preferred Share Variations: Convertible, Callable, Retractable, Floating & Rate-Reset 5.5 Fundamental Equity Metrics & Ratios 5.6 Stock Indexes & Averages
7 Chapter 6: Equity Transactions
6.1 Order Types, Execution & Market Mechanics 6.2 Margin Trading: Long Accounts & Borrowing 6.3 Short Selling & Short-Margin Requirements 6.4 Trading & Settlement Procedures: T+1, CDS & Confirmations
8 Chapter 7: Derivatives
7.1 Derivatives: Role, Underlying Assets & Users 7.2 Options Fundamentals: Calls, Puts & Moneyness 7.3 Option Strategies & Risk Management 7.4 Forward & Futures Contracts 7.5 Rights & Warrants
9 Chapter 8: Corporations and their Financial Statements
8.1 Corporate Structures & Corporate Governance 8.2 The Annual Report, Accounting Standards & the Auditor's Report 8.3 The Balance Sheet & Income Statement 8.4 The Cash Flow Statement & Earnings Quality 8.5 Public Company Disclosure, Investor Rights, Take-Over Bids & Insider Trading
10 Chapter 9: Financing and Listing Securities
9.1 Government & Corporate Financing: Underwriting and Syndicates 9.2 The Prospectus Process, Stabilization & Purchaser Rights 9.3 The Exempt Market & Private Placements 9.4 The Listing Process: TSX, TSXV & Capital Pool Companies 9.5 Continuous Disclosure, Material Changes & Insider Reporting
11 Chapter 10: Investment Analysis
10.1 Methods of Equity Analysis & Macroeconomic Analysis 10.2 Fundamental Industry Analysis 10.3 Company Analysis: Competitive Advantages, Governance & the Dividend Discount Model 10.4 Discounted Cash Flow & Relative Valuation Multiples 10.5 Financial Statement Ratio Analysis 10.6 Assessing Preferred Share Investment Quality 10.7 Technical Analysis: Charts, Trends & Patterns 10.8 Technical Indicators, Volume, Breadth & Sentiment
12 Chapter 11: Portfolio Analysis
11.1 Measuring Investment Return 11.2 Measuring Risk: Types of Risk, Standard Deviation & Downside Measures 11.3 Portfolio Risk & Return: Correlation and Diversification 11.4 Beta, the Capital Asset Pricing Model & the Security Market Line 11.5 Portfolio Manager Styles: Equity & Fixed Income 11.6 The Portfolio Management Process: Objectives, Constraints & the IPS 11.7 Asset Mix, Monitoring, Performance Evaluation & Rebalancing
13 Chapter 12: Alternative Investments, Other Managed, and Structured Products
12.1 Alternative Investments: Structures, Fees & Liquid Alternatives 12.2 Alternative Strategies, Performance Measurement & Due Diligence 12.3 Segregated Funds, Labour-Sponsored Funds & Listed Private Equity 12.4 Income Trusts, REITs & Closed-End Funds 12.5 Structured Products: PPNs & Market-Linked GICs 12.6 Split Shares & Asset-Backed Securities
14 Chapter 13: Mutual Funds
13.1 Managed Products & Mutual Fund Structure 13.2 Pricing Mutual Fund Units: NAVPS & Forward Pricing 13.3 Mutual Fund Fees, Sales Charges & Unit Series 13.4 Mutual Fund Regulation, Fund Facts & Account Opening 13.5 Types of Mutual Funds & Fund Management Styles 13.6 Redemptions, Withdrawal Plans & Measuring Fund Performance
15 Chapter 14: Exchange-Traded Funds (ETFs)
14.1 ETF Origins, Structure, Tax Efficiency & ETF Facts 14.2 ETF Creation, Redemption & Arbitrage 14.3 Types of ETFs & Advanced Strategies 14.4 Comparing ETFs, Mutual Funds & Individual Securities
16 Chapter 15: Working with the Institutional Client
15.1 The Institutional Marketplace & Institutional Clients 15.2 Institutional Investment Guidelines, Styles & Restrictions 15.3 Buy Side & Sell Side: Trading Desks, Revenue, Clearing & Best Execution 15.4 Block Trading, Dark Pools & Algorithmic Trading
17 Chapter 16: Fee-Based Accounts and Working with the Retail Client
16.1 Fee-Based Accounts: Managed & Non-Managed Models 16.2 Fee Transparency, CRM2 & Total Cost Reporting, and MWRR vs. TWRR 16.3 The Financial Planning Approach & the Life Cycle 16.4 Behavioral Finance, Sequence-of-Returns Risk & Client Coaching 16.5 Estate Planning Basics
18 Chapter 17: Canadian Taxation
17.1 The Canadian Taxation System 17.2 Taxation of Investment Income 17.3 Capital Gains, Losses & The Superficial Loss Rule 17.4 Registered vs Non-Registered Tax-Advantaged Accounts 17.5 Tax Planning Strategies, Pension Plans & the RDSP
2.1 Economics Foundations & Measuring Economic Growth
Key Takeaways Explain This Topic AI
Microeconomics studies individual firms and markets; macroeconomics studies economy-wide output, inflation, unemployment and interest rates.
GDP is the market value of all final goods and services produced within Canada in a period; intermediate goods, transfers and financial transactions are excluded.
Under the expenditure approach, GDP = C + I + G + (X − M); consumption is the largest component and investment the most volatile.
Real GDP removes the effect of price changes; real GDP = nominal GDP ÷ GDP deflator × 100.
Last updated: October 2026
Defining Economics
Economics studies how people, businesses and governments make choices when resources are scarce. Because labour, capital and natural resources are limited, every use of them has an opportunity cost.
Microeconomics looks at individual consumers, firms and industries: how prices are set by supply and demand, and how a company decides what to produce.
Macroeconomics looks at the economy as a whole: total output (GDP), inflation, unemployment, interest rates, exchange rates and government policy.
Investors care about both. Microeconomic forces drive the earnings of a particular company, while macroeconomic forces move interest rates, profits across whole sectors, and market valuations. A market brings buyers and sellers together; when demand rises relative to supply, the price rises until the two balance at an equilibrium price .
Economic Growth, GDP & The Business Cycle
Macroeconomics provides the foundational context for all capital market activity. Asset prices, corporate earnings, interest rate trajectories, and industry performance do not exist in a vacuum—they are direct reflections of broader macroeconomic conditions. In Canadian securities analysis, investment advisors and portfolio managers utilize top-down macroeconomic analysis to identify where the domestic and global economies sit within the business cycle, allowing them to formulate tactical asset allocation strategies and anticipate sectoral shifts.
1. Defining Gross Domestic Product (GDP)
Gross Domestic Product (GDP) is the primary metric used by Statistics Canada and global economists to gauge national economic performance. GDP represents the total market value of all final goods and services produced within the geographic borders of a country over a specific time horizon, typically measured on a quarterly or annual basis.
Critical Inclusions and Exclusions
To ensure economic data accurately reflects current productive output without distortion, national accounting conventions enforce strict rules regarding what is counted:
Final Goods Only: GDP measures only goods and services sold to final end-users. Intermediate goods—raw materials, components, and semi-finished products used as inputs in the production of another good—are excluded. For example, the market value of Canadian automotive steel sold to an assembly plant in Oshawa is excluded from direct tallying; its economic value is captured in the final retail purchase price of the assembled vehicle. Counting both the steel and the final vehicle would cause double counting .
Domestic Boundary: GDP measures production occurring strictly inside Canadian borders, regardless of whether the producing enterprise is domestically or foreign owned. A foreign multinational operating a manufacturing facility in Ontario contributes directly to Canadian GDP, whereas profits earned by a Canadian mining firm's subsidiary in Chile do not.
Exclusion of Financial Transactions: Buying and selling common shares on the Toronto Stock Exchange (TSX), trading Government of Canada bonds, or transferring bank deposits are purely financial asset exchanges. They represent the transfer of ownership claims over existing capital, not new output, and are excluded from GDP (though dealer trading commissions and advisory fees reflect current financial services and are included).
Exclusion of Second-Hand Goods: The resale of an existing home built ten years ago or a used automobile does not reflect current production and is excluded from GDP. However, the real estate commission or dealer markup generated during the transaction represents current economic services and is included.
Exclusion of Transfer Payments: Government disbursements such as Old Age Security (OAS), Canada Pension Plan (CPP), and Employment Insurance (EI) payments represent unilateral redistributions of tax revenue rather than payments for current goods or services. They are excluded from government expenditure in GDP calculations.
2. Measuring GDP: Expenditure and Income Approaches
Statistics Canada computes GDP using two independent methodologies: the expenditure approach and the income approach . In theory, every dollar spent on a final good or service represents income to the factors of production that created it. Consequently, both approaches yield identical totals, reconciled via a minor statistical discrepancy line item.
The Expenditure Approach
The expenditure approach aggregates total spending across the four primary economic sectors: households, businesses, governments, and foreigners.
GDP = C + I + G + ( X − M ) \text{GDP} = C + I + G + (X - M) GDP = C + I + G + ( X − M )
Component Economic Sector Typical Share of Canadian GDP Key Characteristics
C C C (Personal Consumption) Households ~55% – 60% Largest and most stable component. Segmented into durable goods (cars, appliances), semi-durables (apparel), non-durables (groceries, fuel), and services (banking, rent, healthcare). Services constitute the dominant category.
I I I (Gross Business Investment) Corporate / Construction ~18% – 24% Most volatile component. Comprises non-residential business fixed investment (machinery, software, industrial structures), residential construction (new housing starts, major renovations), and inventory changes.
G G G (Government Current Purchases) Federal, Provincial, Municipal ~20% – 25% Direct public purchases of goods, civil service payrolls, public defense outlays, and infrastructure capital. Excludes public debt interest charges and social transfer payments.
X − M X - M X − M (Net Exports) International Trade ~-2% to +3% Exports ( X X X ) minus Imports ( M M M ). Canada is an open, trade-intensive economy heavily reliant on resource extraction and manufactured exports, with roughly 75% of merchandise exports destined for the United States.
The Income Approach
The income approach tallies all factor payments generated in the production of goods and services:
Compensation of Employees: Wages, salaries, and employer-paid supplementary benefits (the largest single component of national income).
Gross Operating Surplus: Net corporate profits before taxes, corporate depreciation, and net interest income.
Gross Mixed Income: Earnings generated by unincorporated businesses, sole proprietorships, partnerships, and independent farm operations.
Taxes less Subsidies on Products and Imports: Indirect taxes (such as GST/HST and customs tariffs) added to market prices, minus production subsidies paid by governments.
3. Nominal GDP vs. Real GDP and the GDP Deflator
A primary challenge in macroeconomic measurement is distinguishing whether an increase in GDP reflects an actual rise in the physical quantity of goods and services produced or merely an increase in price levels due to inflation.
Nominal GDP: Evaluates output using current market prices prevailing in the year the output was generated. If prices double while physical production remains flat, nominal GDP doubles, presenting a misleading picture of economic expansion.
Real GDP: Measures output using the constant prices of an arbitrarily chosen base year. By holding prices constant, Real GDP isolates changes in physical volume, providing an accurate metric of genuine economic growth.
The GDP Deflator
The GDP deflator is a comprehensive price index reflecting the price level of all domestically produced final goods and services included in GDP:
GDP Deflator = ( Nominal GDP Real GDP ) × 100 \text{GDP Deflator} = \left( \frac{\text{Nominal GDP}}{\text{Real GDP}} \right) \times 100 GDP Deflator = ( Real GDP Nominal GDP ) × 100
To derive Real GDP from Nominal GDP using the deflator:
Real GDP = ( Nominal GDP GDP Deflator ) × 100 \text{Real GDP} = \left( \frac{\text{Nominal GDP}}{\text{GDP Deflator}} \right) \times 100 Real GDP = ( GDP Deflator Nominal GDP ) × 100
Worked Example: Calculating Real GDP Growth
Suppose Statistics Canada reports the following macroeconomic figures for two consecutive years:
- Year 1 (Base Year): Nominal GDP = $2,400 billion; GDP Deflator = 100.0
- Year 2: Nominal GDP = $2,550 billion; GDP Deflator = 104.0
Step 1: Compute Real GDP for Year 1: Real GDP 1 = ( $ 2 , 400 100.0 ) × 100 = $ 2 , 400 billion \text{Real GDP}_{1} = \left( \frac{\$2,400}{100.0} \right) \times 100 = \$2,400\text{ billion} Real GDP 1 = ( 100.0 $2 , 400 ) × 100 = $2 , 400 billion
Step 2: Compute Real GDP for Year 2: Real GDP 2 = ( $ 2 , 550 104.0 ) × 100 = $ 2 , 451.92 billion \text{Real GDP}_{2} = \left( \frac{\$2,550}{104.0} \right) \times 100 = \$2,451.92\text{ billion} Real GDP 2 = ( 104.0 $2 , 550 ) × 100 = $2 , 451.92 billion
Step 3: Calculate the Real GDP growth rate: Real Growth Rate = ( $ 2 , 451.92 − $ 2 , 400 $ 2 , 400 ) × 100 = 2.16 % \text{Real Growth Rate} = \left( \frac{\$2,451.92 - \$2,400}{\$2,400} \right) \times 100 = 2.16\% Real Growth Rate = ( $2 , 400 $2 , 451.92 − $2 , 400 ) × 100 = 2.16%
While nominal GDP expanded by 6.25 % 6.25\% 6.25% ( ( 2 , 550 − 2 , 400 2 , 400 ) × 100 (\frac{2,550 - 2,400}{2,400}) \times 100 ( 2 , 400 2 , 550 − 2 , 400 ) × 100 ), real physical economic output grew by only 2.16 % 2.16\% 2.16% . The remaining 4.09 % 4.09\% 4.09% increase represented price inflation.