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ECO202Y1YWriting Assignment 2

Winter 2024

Background

Over the past 100 years Argentina has suffered a series of interrelated economic and political crises. As a result the country’s economy is in poor health: over 50% of the population are below the poverty line, the annual inflation rate in 2023 was over 100%, and the government regularly runs large budget deficits leading to outstanding government debt being 80% of GDP.

For more background on Argentina’s political, monetary and fiscal history, please read the article from The Economist posted to Quercus: “A century of decline”, The Economist, 17 Feb 2014. There is an additional paper posted to Quercus that you may read for background information, but it is not required: “The case of Argentina”, Buera and Nicolini, January 2019

Assignment

Pretend that you work for a large company based in Canada that is considering expanding its operations into Argentina. You are tasked with writing a background report that describes the unique macroeconomic environment of the country. Your report should be split into two parts: 1) Argentina’s recent history and 2) Argentina’s future under newly-elected President Javier Milei.

Part 1: Argentina’srecent history

The first half of your report should explain the behaviour of key macroeconomic variables from around 1960 to 2024. Alongside your explanation you must include data plots of the following variables (see reference below):

-    The monthly inflation rate

-    Real GDP per capita growth

-    Government budget deficits as % of GDP

-    Government gross debt as % of GDP

You are free to include additional graphs or statistics if you believe they will strengthen your argument. Using these data series, please address the following talking points:

1)   How does the history of inflation in Argentina compare to that of developed countries? How does it compare to the history of inflation for neighbouring Latin American countries?

-    You may wish to include plots of inflation in your comparison countries. For comparison, it is sufficient to choose a single representative developed country and a single Latin American country.

2)  How are budget deficits related to the size of government debt overtime? What concept from class does this relationship reflect?

3)  What is the connection between the government budget, real GDP growth, and the inflation rate? Are there any periods in Argentina’s history that demonstrate this connection especially well?

Part 2: Argentina’s future

In the recent election of October 2023, Argentinianselected Javier Milei who campaigned on a platform of radical economic and political change. Since taking office Milei has initiated a wide range of reforms aimed at ending Argentina’s economic malaise. In particular, the new government has promised to reduce government spending by 3% of total GDP and raise taxes on exported goods. Your report must address the following questions:

1)   How will the reduction in government spending and increase in taxes affect real GDP growth,the government budget, and inflation?

2)  In response to the government’s plans, the central bank has announced it will lower the nominal interest rate, against the recommendation of the International Monetary Fund  (IMF). Why is the IMF against a lowering of the nominal interest rate?

3)  Using our IS-MP framework, describe the likely impact of this fiscal policy on the output gap and inflation.

Finally, your last paragraph should provide your opinion about Argentina’s macroeconomic prospects. Do you believe the economic and political changes will bring about prosperity or do you have concerns about their practicality or feasibility? Your opinion must be based on sound macroeconomic theory and/or political theory – feel free to rely on outside knowledge, but you must defend your position.

Audience

Your report should be written for upper level business executives who have a moderate understanding of intermediate macroeconomic theory. Assume your audience has taken ECO202 in the past and can follow descriptions of our short-run model. You may reference model terms and variables as long as you properly define them. For example, do not simply say ‘this will cause a shift in the IS curve’. Instead, say ‘this will cause a shift in the IS curve, which relates aggregate spending to real interest rates’. Wherever possible try to refer to model terms with English rather than math. For example, try to say ‘autonomous spending’ rather than ‘ ’ .

Report structure

1.   You should separate your report into two distinct sections with their own heading. Each section should begin with a brief introduction that outlines the main points you will make in the following paragraphs. The introduction for part 1 should provide abroad historical background for Argentina’s economy and give an overview of your answers to the three questions. The introduction for part 2 should contain your overall conclusion regarding the future of Argentina’seconomy.

2.  Following the introduction you must answer each question in a natural and connected  manner. You may answer the questions in any order, but ensure that each paragraph is related to the previous and is appropriately linked. Each paragraph should convey one  major idea and have a logical internal flow that explains and defends that idea.

3.  When you reference a data plot you must describe the variables it contains and the trend shown by the data. Do not assume that the reader will look at the graphs and independently understand their meaning. You must guide your audience towards your conclusions within   the body of the text.

4.  The conclusion for part 1 should succinctly describe the relevance of Argentina’shistory for   the political changes occurring today. The conclusion for part 2 should provide your opinion about the future of Argentina’s macroeconomy, as described in the ‘Assignment’ section.

5.  You must cite your data sources and the required background article from The Economist. You do not need to cite the lectures, textbook. However, if you use any other articles (including the optional background paper) you must cite them. All references should be listed at the end of the paper. They do not count towards the word limit.

Data plots

At a minimum your report must have four distinct data plots as outlined in the ‘Assignment’ section. Each plot must contain an accurate title, legend for the data series within, and axes labels. You may choose to include the graphs in the body of the text or in an appendix. Wherever you place your graph ensure you label it with a convenient name for referencing in the text, such as ‘Figure 1’.

Finding data

You are free to locate your own data. Recommended sources are below:

-    Inflation:https://thebillionpricesproject.com/datasets/

When downloading the data, enter University of Toronto as your institution and Student as your position.

-    Real GDP per capita growth:https://fred.stlouisfed.org/

Search for data series ‘NYGDPPCAPKDARG’

-    Government debt:https://fred.stlouisfed.org/

Search for data series ‘GGGDTAARA188N’

-    Government budget:https://www.imf.org/en/Publications/WEO/weo- database/2023/October

Select data series ‘General government net lending/borrowing’

Formatting requirements

To earn full marks you must do the following:

•     Your assignment must be typed, double-spaced, and have a font size of 12 points.

•    Your assignment must beat most 1200 words long. There is no minimum word count. The 1200 word limit is a hard cut-off: you will lose points for writing more than 1200 words. Put the word count of your assignment in parentheses at the end, like “(943  words). ”

•     The header of your assignment (the first four lines) should have your full name, student ID number, the class information (ECO202, 2023–2024), and the title of your assignment.

Submission instructions

You must submit your assignment to both Quercus and Crowdmark. To do so, follow these steps:

1) Complete your work in Microsoft Word.

2) Submit the Microsoft Word file to the Quercus assignment.

3) Convert the Microsoft Word file into a pdf file (File -> Save as -> file type pdf).

4) Submit the pdf file to Crowdmark.

5) Both steps must be completed before the deadline at 11:59pm!

You must verify your work was properly submitted before the deadline. You may make multiple submissions before the deadline if you discover an issue with a previous submission. See the following link for details on how to verify your submission:

https://crowdmark.com/help/verifying-that-an-assignment-was-submitted/