MACROECONOMICS 1 ASM1 SEMB2022 LOC

RMIT MACROECONOMICS Sem B 2022 ASM 1, Mr Loc. I got DI (75%) for this assignment. This is my own individual assignment. Please do not copy or reuse it for any commercial purposes. Be careful of plagiarism.

Cover Page

Table of Contents

I 3

a PPF and discussion 3

b Points discussion: 4

c Trade-off explanation: 4

d Discussion regarding Ukraine-Russia conflict’s effect 5

II 6

a Data collection and discussion 6

b Informal sector discussion 7

III References 8

IV Appendices 11

Abbreviation Index

I

Portugal

a PPF and discussion

According to World Bank (2007), agriculture plays a crucial part in ensuring food supply Meanwhile, the automobile sector is a significant contributor to the Portuguese industry (ITA 2021) Hence, agriculture and industry data in the GDP may presumably be used to identify food and vehicles in the PPF, respectively

Figure 1: Share of Portugal’s economic sectors (2010-2020) (Statista

2022)

Figures 1 and Appendix 1 show Portugal's share economic sectors Calculations show the industry-to-agriculture (vehicle-to-food) ratio is approximately 9:1 Therefore, the PPF should be depicted as follows:

Figure 3: Portugal’s PPF curve

b Points discussion:

On the curve, if Portugal devotes all its resources to food, it can produce at A; otherwise, it can use them to produce vehicles at E Other points (B, C, D) are the maximum production quantities when producing two goods simultaneously Portugal can choose any producing combination on the curve to gain efficiency (Littleboy et al 2013) Similarly, point Z under the curve is attainable but inefficient owing to excess capacity Whereas, due

to resources constraint, production beyond the PPF (point Y) is unattainable

c Trade-off explanation:

Opportunity cost is the trade-off value when Portugal chooses to produce one good instead of another, for example by producing 1 vehicle (A to B horizontally), 7 food units must be given up (A to B vertically) Therefore,

the only way to produce more vehicles is to sacrifice some food and vice versa The table shows detailed OC for producing one more vehicle

d Discussion regarding Ukraine-Russia conflict’s effect

Due to indirect exposure and commercial ties to the region, Portugal is among the least vulnerable to the Ukraine-Russian war, (Martin 2022) However, conflict spillovers may affect food and vehicle production as some EU auto companies must stop due to wire harness shortages (Nasdaq 2022) Moreover, surging input and energy prices might slow Portugal's agricultural growth (Duarte & Correia 2022) Hence, the government prioritizes food security through subsidizing agriculture to protect vulnerable citizens from rising costs (European Commission 2022; Duarte 2022) As a result, food (agriculture) production will increase, resulting in a move along the PPF curve towards foods

Figure 4: Illustration of Portugal’s PPF change

II

a Data collection and discussion

Figure 5: Portugal’s real and nominal GDP (2005-2020) (UNdata 2022)

( Appendix 2)

Portugal's real and nominal GDP have fluctuated significantly during the past 15 years Except for the base year 2015, nominal GDP is always greater than real GDP This is due to 2008 Great Recession, which generated an economic (debt) crisis and political turmoil (Appendix 3) The

2011 inflation peak (Appendix 4) and massive public debt (Appendix 5) prompted IMF and Europe to initiate the 92 billion$ bail-out program, which helped Portugal's economy recover (Almaro 2017; de Sousa et al 2014) Therefore, real GDP recovers in 2012, steadily narrowing the gap between real and nominal GDP

b Informal sector discussion

The informal sector is the portion of a country's economy that consists of illegal and unregulated businesses (Littleboy, 2013), and it exists in Portugal economy Nonetheless, its size in Portugal remains smaller than the EU average (Dell'Anno 2007; Schneider 2022; Figure 6) Despite its contribution to the GDP, the informal sector is rarely adequately reflected in national accounts (official GDP) (Becker 2004)

Figure 6: Shadow economy’s size (Schneider 2022)

III References

 Almaro, S 2 August 2017, ‘How Portugal came back from the brink —

and why austerity could have played a key role’, CNBC, accessed 12

July 2022 < https://www.cnbc.com/2017/08/02/how-portugal-came-back-from-the-brink.html>

 Becker, KF 2004, Fact finding study: The Informal Economy, Sida, accessed 12 July 2022 < http://www.rrojasdatabank.info/sida.pdf>

 Duarte, V and Correia, TB 2022, Portugal: a first assessment of the impact of the war in Ukraine, CaixaBank Research website, accessed

15 July 2022 < https://www.caixabankresearch.com/en/economics-

markets/activity-growth/portugal-first-assessment-impact-war-ukraine>

 Dell'Anno, R 2007, "The shadow economy in Portugal: an analysis

with the mimic approach", Journal of Applied Economics, vol 10, no.

2, pp 253-277 < https://www.lib.rmit.edu.au/easy-cite/? styleguide=styleguide-1#stn-2#subtype-25>

 Duarte, V 2022, Portugal: 2022 budget and measures in response to the war in Ukraine, CaixaBankResearch, accessed 12 July 2022 <

https://www.caixabankresearch.com/sites/default/files/content/file/ 2022/05/12/34454/im05_22-web-08-ep-focus-8-en.pdf>

 de Sousa, L, Magalhães, PC & Amaral, L 2014, ‘Sovereign Debt and

Governance Failures: Portuguese Democracy and the Financial

Crisis’, The American behavioral scientist (Beverly Hills), vol 58, no

12, pp 1517–1541 <

https://journals-sagepub-com.ezproxy.lib.rmit.edu.au/doi/10.1177/000276421453466 6 >

 European Commission 2022, Commission opinion of 19.5.2022 on the Draft Budgetary Plan of Portugal, European Commission,

2022.<https://ec.europa.eu/info/sites/default/files/economy-finance/

 European Commission 2011, The Economic Adjustment Program for

Portugal, Economics and Financial Affairs, European economy

occasional paper 79, accessed 12 July 2022 <

https://ec.europa.eu/economy_finance/publications/occasional_paper /2011/pdf/ocp79_en.pdf>

 ITA (International Trade Administration) 2021, Automotive and Automotive Parts, ITA website, accessed 13 July 2022 <

https://www.trade.gov/country-commercial-guides/portugal-automotive-and-automotive-parts>

 Littleboy, B, Taylor, JB & Weerapana, A 2013, Macroeconomics: principles and practice, Asia-Pacific edition., Cengage Learning, South Melbourne,Victoria.<https://ebookcentral.proquest.com/lib/rmit/ detail.action?docID=1990996&pq-origsite=primo>

 Martin, P (18 May 2022), 'Portugal least vulnerable to Ukraine war impact', The Portugal News, accessed 12 July 2022 <

https://www.theportugalnews.com/news/2022-05-18/portugal-least-vulnerable-to-ukraine-war-impact/67161>

 Nasdaq 2022, What War in Ukraine Means for the Automotive Industry, Nasdaq website, accessed 12 July 2022

< https://www.nasdaq.com/articles/what-war-in-ukraine-means-for-the-automotive-industry>

 Statista 2022, Portugal: Share of economic sectors in gross domestic product (GDP) from 2010 to 2020[data set], Statista website, accessed 14 July 2022 < https://www.statista.com/statistics/372187/ share-of-economic-sectors-in-the-gdp-in-portugal/#:~:text=This

%20statistic%20shows%20the%20share,sector%20contributed

%20about%2065.65%20percent.>

 Schneider, F 2013, The shadow economy of Europe 2013, JKU -Johannes Kepler Universität Linz, accessed 13 July 2022 <

http://img2.ct24.cz/multimedia/documents/47/4657/465614.pdf>

Econ Policy 19, 299–313 accessed 13 July 2022.

<https://doi.org/10.1007/s10368-022-00537-6>

 UNdata 2022, GDP by Type of Expenditure at current prices - US dollars, UNdata website, accessed 14 July 2022 < http://data.un.org/ Data.aspx?q=gdp+&d=SNAAMA&f=grID%3a101%3bcurrID%3aUSD

%3bpcFlag%3a0>

 UNdata 2022, GDP by Type of Expenditure at constant (2015) prices

- US dollars, UNdata website, accessed 14 July 2022

<http://data.un.org/Data.aspx?q=gdp+&d=SNAAMA&f=grID

%3a102%3bcurrID%3aUSD%3bpcFlag%3a0>

 World Bank 2007, What Are the Links between Agricultural Production and Food Security? accessed 12 July 2022 <

https://elibrary.worldbank.org/doi/10.1596/978-0-8213-6807-7_FocusC#:~:text=Agriculture%20plays%20a%20key%20role,foods

%20with%20high%20nutritional%20status.>

IV Appendices

Appendix 1: Share of Portugal’s economic sectors (2010-2020) (Statista

2022)

Portugal real vs nominal GDP

Appendix 2: Portugal real vs nominal GDP (UNdata 2022)

Appendix 3: The sovereign debt crisis of Portugal- Chronology of events

(European Commission 2011)

Appendix 4: Portugal’s inflation rate (2006-2020) (Statista 2022)

Appendix 5: Gross public debt, Portugal 1990–2012 (% of gross domestic

product) (de Sousa et al 2014)

Appendix 6: The shadow economy in relation to GDP (Schneider 2013)