ECC1100-Principles of Macroeconomics

Purpose

This assessment is designed to familiarize students with the way in which the key concepts and tools taught in first year Macroeconomics may be applied to interpret and analyze real-world economic policies and circumstances. Students will be required to work within groups to extract and interpret economic indicator data from various sources alongside external research to critically evaluate the key macroeconomic challenges that Brazil faces. They will then be able to link the macroeconomic models taught in this unit with their data and use their understanding of key macroeconomic concepts to conclude on some policy recommendations.

Task

In this part of the assignment, each group will be required to present their findings regarding the state of Brazil’s economy at a specific point in time. Every group will have a maximum of 10 minutes to present their findings. You will be assessed on your ability to meet the criteria listed below alongside your presentational skills and overall presentation flow. Remember that you must label and use AD-AS diagrams in your presentation to help you explain your findings. There are two main parts (plus an optional extension) to this presentation: 

Part 1:

To begin, your tutor will assign you either of four years: 2007, 2010, 2014 and 2017.

You will then need to determine where the economy is in the context of the AD-AS diagram in that year. Assume that the economy is initially at a short-run equilibrium where the AD intersects with the short-run AS (SRAS). 

1.To do this, you will first need an estimate for potential Real GDP (RGDP) and the inflation rate at the long-run equilibrium. Assume for simplicity that potential RGDP and long-run equilibrium inflation is equal to the average of the indicator from the last five years. o Eg: if you are assigned 2007, take the average from 2003-2007 for RGDP / inflation 

2.Compare actual RGDP and inflation in your assigned year with this estimate of potential RGDP and long-run equilibrium inflation. From your estimates, what kind of type of gap is your economy experiencing in the short run? Has the AD or the SRAS shifted?

3.You are encouraged to use your knowledge of the trends identified in week 5’s discussion and to consult other sources (for instance: news articles, other indicators) to help you explain your answer. What pressing macroeconomic issues are potentially causing the economy to experience this gap? Why? 

4.Remember to demonstrate all of the above on an AD-AS diagram in your slides (with labelled points). 

Par 2

You will then need to explain how the economy may return to long-run equilibrium using monetary policy, given the gap you find in part 1. What monetary policy settings would you recommend? Why?

1.Be sure to consider the different stances of monetary policy discussed within the unit that the central bank can undertake. We will also investigate whether the Central Bank of Brazil (BCB) has adopted a similar policy setting to that of yours in that year: 

2.Plot the SELIC (interest) rate set by the BCB over the year in which you have been assigned to (eg: if you are assigned 2007, plot the SELIC rate from January 2007 to December 2007). Does the trend in actual interest rates set mirror that of your recommendation?