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Managerial economics - Macro assignment

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  1. The evolution of the Portuguese economy over 2001-2006
    1. The evolution of indicators like the Q-gap, inflation and growth
    2. The policies pursued by the Government
    3. The private sector balance
    4. The external balance
    5. The process of economic adjustment over 2004-2006
    6. Shifting the LRAS curve
    7. Adjusting towards potential output
    8. Independent monetary policy
  2. US economic history since the 1960s

Describe the business cycle over 2001-2006 via the evolution of indicators like the Q-gap, inflation & growth.

In 2001 and 2002, Portugal's real GDP was bigger than the potential GDP, resulting to a positive Q-gap. That meant that firms were operating above capacity, translating into growth, limited unemployment but higher than normal inflation.

[...] Firms returned to operating above capacity, increasing growth and inflation. b. Discuss the policies pursued by the Government, at each stage of the business cycle, over 2001-06 to steer the economy towards potential output seems to be the year that the business cycle reached its peak. Since real>Q-pot, the government pursued contractionary policies to reduce inflation. Such contractionary policies are of both monetary nature (raising interest rates) and fiscal (increasing taxation). This proved to be effective with Q-gap decreasing and in 2004 the downturn hit bottom. [...]


[...] How has economic policy affected the private sector balance over the business cycle towards potential output? Up to 2002 private sector increased its investment rate, but from 2003 the contractionary policies took its toll, investment rate decreased, and in 2004 savings were actually more than investments. In 2005-2006 the expansionary policies paid out and investments increased. d. How have private & public sectors affected the external balance? Is the country increasing its foreign debt over 2001-03 and by how much each sector has contributed? [...]

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