Calculate the following for CANADA
1. Real GDP growth rate for the past 5-10 years.
2. Inflation rates (CPI) and unemployment rates for the same period.
3. The budget deficit (also called fiscal deficit, public-sector balance, cash deficit). This should be expressed as a percentage of GDP.
4. The public-sector debt. This should also be expressed as a percentage of GDP.
Plot these figures and compare the relationships with the ones given in the textbook and our lectures. Specifically:
a. Indicate potential GDP growth* for your country and plot a "diagnostic" business cycle, identifying inflationary and recessionary gaps.
b. Are the relationships shown in your graphs the ones you would have expected to find? Look for evidence of the Phillips curve, Okun?s law, and the predicted relationships between the business cycle and deficits/debts.
c. Does it appear that authorities are using expansive or restrictive fiscal policies? Are those policies appropriate for the gaps you identify in the economy?
d. Is this country?s debt a problem?? Why or why not?
e. Can you find explanations for any deviations that you observe from the normal relationships discussed in class?
Your report should be turned in in Power Point format, with graphs of the evolutions of all the variables and answering all questions stated above.
See example for the DR case, so you get an idea of what you have to submit.
*The key to this report is knowing the GDP gap in order to truly evaluate and "diagnose" an economy.? This data can be obtained from sources such as the OECD, which calculates potential GDP and the output gap each year for all of its member nations (mainly developed countries); and from the IMF, which includes estimates of the output gap (Output gap in percent of potential GDP).
Attached is an example of what i need.
Macroeconomic Indicators for
the Dominican Republic ? During the past two years the Dominican economy has been growing above its potential.
Dominican Republic: Real GDP vs. Potential GDP
Annual Variation % 12.0 Real GDP Potential GDP 10.0 Inflationary
Gap 8.0 6.0 5.0
4.0 2.0 Recessionary
Gap 2005 2006 2007 -2.0 -4.0 Source: Central Bank of the Dominican Republic 2008 2009 2010 2011 2012 2013 2014 2015 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 0.0 ? Okun?s Law holds true for the Dominican Republic, i.e. there is a negative relationship
between inflation and unemployment.
Dominican Republic: Okun's Law
Unemployment vs. Real GDP, October 2000-2015
10.0 8.0 % change in Real GDP 6.0 4.0 2.0 0.0
-1.5 -1.0 -0.5 0.0 -2.0
Source: Central Bank of the Dominican Republic Change in Unemployment Rate 0.5 1.0 1.5 ? Plotting inflation and unemployment rates for the years 2014-2015 would lead us to believe
that Phillips Curve applies, in the short-run, i.e. there is a negative relationship between
inflation and unemployment.
Dominican Republic: Short-Run Phillips Curve
Unemployment vs. Inflation, 2014-2015 2.50
2015 Inflation Rate (% per year) 2.00 2014
1.50 1.00 0.50 5.9 5.9 5.9 5.9 5.9
Unemployment Rate (%) Source: Central Bank of the Dominican Republic 6.0 6.0 6.0 6.0 ? Considering a longer period we do not see this relationship. ? However, it is evident that growth can be achieved with low levels of inflation.
Dominican Republic: Long-Run Phillips Curve
Unemployment vs. Inflation, 2005-2015 10.00 2007 9.00 2011 8.00 2005 Inflation Rate (% per year) 7.00 Central Bank
2013 4.00 3.00 2015 2.00
2014 1.00 - 1.0 2.0 3.0 4.0
Unemployment Rate (%) Source: Central Bank of the Dominican Republic 5.0 6.0 7.0 8.0 ? There is an upward trend in Government debt, which could become unsustainable if one
considers that on average debt service amounts to about 40.0% of total exports. ? IMF suggests fiscal consolidation, reduction of dependence on foreign currency loans,
development of the domestic bond market, and a unified debt management between fiscal
and monetary authorities.
Central Government Debt
US$ 37.9 32.2
27.5 27.6 37.2 Dominican Republic:
Central Government Debt Service
% of Total Exports 23,809 24,155 47.7
14,818 19.5 46.5 42.5 19,463
22.0 58.1 36.0 35.1 34.3
28.1 13,254 26.2 11,219 7,787 8,377 8,569 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Central Bank of the Dominican Republic and the Public Credit General Office 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 IMF Article IV Consultation
? IMF staff visited the country to conduct the Article IV consultation, the annual visit
to discuss and obtain information about economic performance, current policies,
and future prospects. ? The mission projected that in the absence of new fiscal policy measures the
consolidated public sector deficit, including the electricity sector and the Central
Bank, would reach 5.0% of GDP in the medium term. Thus consolidated public
debt would be less than 50.0% of GDP by 2015 and close to 54.0% of GDP by
2020. ? They suggested the government should speed up the fiscal consolidation process
so as to achieve a positive primary balance of the consolidated public sector that
would reverse the upward trend in debt. ? Moreover, the risk profile of the public debt would benefit from a reduction of its
dependence on foreign currency loans, which require further development of the
domestic bond market and a unified management between fiscal and monetary
authorities as to the term structure of emissions and the management of public
debt. Dominican Republic: Real GDP and Government Policies
Annual Variation %
Restrictive fiscal policy:
Increased income tax rate
to 30.0%, broadened VAT
tax base, created excise
tax of 13.0% on fuels, etc. 9.4 Restrictive fiscal
New excise tax on
excise tax on fuel to
16.0%, etc. 9.2 7.4 Restrictive fiscal policy:
income tax to 29.0%,
imposed new taxes on
gambling and casinos,
created a 1.0% tax on
banks? net assets. Expansionary fiscal policy
due to global economic
government spending and
reduced consumer tax
burden. 8.3 Restrictive fiscal policy:
of the 2012 Tax Reform.
Expansionary fiscal policy:
expenditure on social
programs, especially on
education. Restrictive fiscal policy:
Reduced tax expenditure,
increased VAT rate to
18.0%, broadened VAT tax
base, increased tax on
cigarettes and alcohol,
modified income tax
application, created 3.5%
sales tax on free trade
zones, etc. 7.3 7.0 4.8 3.1 2.8 2.6 0.9 2005 2006 2007 Source: Central Bank of the Dominican Republic 2008 2009 2010 2011 2012 2013 2014 2015 ? You would expect that during an inflationary gap, when the government applies a restrictive
policy, the deficit and debt will decrease. Likewise, when the government implements an
expansionary policy during a recession the opposite should occur. ? Although that seems to be the case in some years, it is not in all of them.
Central Government Balance, % of GDP Dominican Republic:
Real GDP vs. Potential GDP, Annual Variation % 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0.2 0.1
9.4 9.2 -0.6
7.4 7.3 3.1 2.8 -1.0
-2.4 -3.3 7.0 2006 2007 2008 2009 Real GDP 2010 2011 -2.8 Dominican Republic:
Central Government Debt, % of GDP 2.6 2012 -3.4 -3.4 -6.7 0.9 2005 -2.5 5.0 4.8 2015 2013 2014 21.7 22.0 2005 2006 19.5 23.3 27.5 27.6 28.5 2009 2010 2011 37.9 37.2 36.0 2013 2014 2015 32.2 2015 Potential GDP Source: Central Bank of the Dominican Republic and the Public Credit General Office 2007 2008 2012
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