Managerial economics, macro assignment, business cycle, Q-gap, inflation, growth, GDP, monetary policy
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.
[...] So, the country is increasing its foreign debt over 2001-03. By dividing each sector to the external balance, we should be able to find their contribution. Year By the above table we can assume that the public sector contributed more to the external deficit, compared to the private sector, up to 2004 (that year in fact, savings were bigger than investments for the private sector). Expansionary policies paid out, investments increased, taxes decreased and the balance between private and public sector was restored in 2006, when each sector weighed the same for the external balance. [...]
[...] Similarly, by increasing the reserve requirements money supply would be reduced. A multiplier process allows banks to create money and adjust money supply, depending on reserve requirement. When there is free capital movement, an independent national monetary policy loses its effectiveness on savings Use AD-AS-LRAS diagram to explain US economic history since the 1960s in PPT on “Macroeconomic Stabilisation” slides number & 9. You can watch the attached video clips (numbers show the start-end minute to watch on the video) During the 60's, the Vietnam War led to the US government spending heavily, that led to growth, GDP was operating above potential, unemployment rate was declining as new jobs were created, wages increased and respectively so did prices, that led to a trade-off with rising inflation. [...]
[...] Assignment 3 Managerial Economics January The table below describes the evolution of the Portuguese economy over 2001-2006. Year Growth %Q-gap Inflatio T-G Interest X-M S-I n rate (%gdp a. 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. [...]
[...] 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? [...]
[...] If the government did nothing, describe how the economy would adjust itself automatically after 2001 towards potential output (use AD-AS- LRAS diagram). Which school of thought would have chosen this course of action and what is the alternative option? For the period 2001-2002, when the %Q-gap was positive and GDP was above potential, wages rise shifting SRAS left. From 2003 and forth, when the %Q-gap was negative and GDP was below potential, wages fall shifting SRAS right. The non-activists (monetarists) support such course of action, with no need for government intervention and rather focus on supply-side to raise potential output. [...]
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