ECON112 Qatar University Low Inflation Rate and Economic Growth Rate Essay There are two questions related to macroeconomics about a case study I have atta

ECON112 Qatar University Low Inflation Rate and Economic Growth Rate Essay There are two questions related to macroeconomics about a case study I have attached both the case study and the two questions.That’s it 220
Princlpl
f
es o Macroeconomics
An Inside
. Growth and
Econorn1~ Rate: Are
the 1nt1at_1′?~elY Related?
The Y pos1t1
SU/’/’l-! /01.COM, NOVEMBER IO, 2010
The IMF said the Middle East was
icu- ~ . . “a generally robust recovery”
t
h tes par
V nJoying
.
.
‘
decline in GDP growl r~ d, ue to the
e
use of higher oil pnces and governbeca t policies des1gne
•
d to mitigate
··
larly oil-producing coun wes ks in prothe
.
d
cutbac
d
men
b
1
. dOWn.
fall of oil pnces, an .
24/7 quote
f~ ts of the glo a economic
e iec But it sa1″d more had t o b e done
duction quotas,” Emirates
. .
the ADDED report as saying.
turd~- sify economies and create more
to 1ver
.
.obs in the private sector, particularly
lnflatlon Down
. h. best
~,n countries such as Egypt, Jordan,
and
l .
Economic growth across the Arab ~ “After climbing to one ~f its ,ggion
.
wi·th
large
youth
popu
at1ons
and
Syna
world fell in 2009. The IMF predicts0
•n 20 08 inflation in th e re. ly
·c unemployment. According
1eve1s 1
.
‘
• .
t
main
c h ron l
.
recovery m 2010, but warns more jobs
d” ed to single-d1g1t ra es,
t· n
IMF
estimates, the countnes of the
,pp
If
Coopera
to
b
must . e created. Real growth in the
in the six-nation Gu
re ort
~ENA region will have to create 18
combmed economies of Arab counCouncil (GCC),” the A_DDED b pthe
‘llion jobs in the next decade. High
tries fell to around 1.5 percent in 2009,
said. According to estimatesie/ the
mid sustained growth is a “precondition
according to the annual report of the
IMF and the GCC co~ntr GCC
: r such large-scale job creation and for
Abu Dhabi Department of Economic
combined inflation rate m th e
t
raising incomes:’ said Masood Ahmed,
Development (ADDED) issued on
fell dramatically from 10.7 _ver~~
10
director of the IMF’s Middle East and
November 10, 2010, and cited by the
in 2oo8 to about 3.7 percent
~ . ·
· Central Asia department, quoted by the
Dubai-based Emirates 24/7 website.
Jordan, Egypt and other coun~n:::
This was much lower than the growth
the Middle East recorded falls m
Financial Times on November 8. 2010.
rate of 6.2 percent in 2008, when oil
inflation rates too. However, in ~ugu st
source: Peter . Feuilherade, “Arab Economic
prices averaged as high as 95 US dollars
ZOlO inflation in Saudi Arabia, the
Growth Predicted to Rebound After 2009 Drop,’
a barrel and most Arab producers were
biggest Arab economy, climbed t~ an
suitel0l.com, November 10, 2010.
pumping at near capacity, the ADDED
l8-month high of 6.1 percent, mai~ly
Peter Fe~ilherade, a former BBC World Service jourreport said. Except for Qatar, the
because of rising food and housmg
nalist, is a UK-based Middle East writer and ana~st.
world’s top exporter of liquefied natucosts.
ral gas (LNG), all Arab states recorded
Key Points in the Article
single-digit growth in 2009.
IMF Forecasts Growth to Rise
This article discusses the impact of the
~
But ADDED, citing estimates by the
Again
In
201
O
._,Abu Dhabi-based Arab Monetary Fund
recent business downturn on economic,
(AMF), noted that the economic crisis
In October 2010 the IMF forecast ecogrowth in the Arab economies during th~
also had positive effects, as it had pulled
nomic growth in the Gulf states of
period 2008-2010. The recession of 2009,·
some Arab countries out of the throes of
4.5 percent in 2010, compared with
caused by the international financial criinflation that had hit record rates . . ..
a mere 0.4 percent in 2009. In Nor th
sis, resulted in a slower economic expan•
Outside the Gulf, growth in Egypt
Africa, the IMF predicted growth
sion in the Arab countries compared with
fell from seven to 4.7 percent, while it
of 5 percent. “With the rebound in
the expansion (growth) rates realized in
declined from 5.5 to four percent in
c~ude oil prices and production, the
Jordan, from 8.5 to seven percent in
2008. The low economic growth rates
oil-exporting countries of the Middle
Lebanon, and from around 5.1 to three
were associated with low inflation rates
East .a ~d ~orth Africa [MENA] will
percent in Syria. “The real economy in
too, but also with more iobless people.
see vmble improvements in th . fi
the Arab countries, as in other nations,
cal and
e1r isThe increase in oil prices in 2010 and the
ext~r~al balances in 20 I 0-11 ,,
declined in 2009 as a result of vulnerthe IMF said m its R .
,
ambitious government expenditure pro·
ability to international changes, and
Outlook: Middl E egional Economic
grams made many economic ana1yst!
most countries in the region saw a
e
ast
and
c
l
.
-•
… -r •~, ….-. ! . •..,_ ;–~ – ..
report, released on O b entra Asia
· a strong economic recovery ·,n th!
Predict
cto er 24, 2010.
Arab Economic
Growth Predicted
to Rebound after
2009 Drop
M,.
Arab economies in the near future.
Economic Growth, the Financial System, and Business Cycles
::~d
the News
01yi in~sed
~~ 80111 oll-b
e
and non-oil-based
suffered from a
185
8conorn
•rab
onomlc growth rates In
”
their ec
ion
In
s
.Al)Cl
2000 8 a result of the global
“” Y•.ar of that Year’ which affected prl..,
,,,••,Ion In
rP.. strnent negatlvely. But the reoesinve
ed Arab economies more
“”’
oll-bBS
sJ0’1 hit thn-oll-based ones. The reason
8
n
harp decline In oll prices In
tn•nth dthes
lies i,e111n nd US$95 per barrel on average)
2(1J9(ato~ with 2000 (around US$53 per
cO'”pare Average). For example, accordi,arrel on world Development Indicators,
10 th8
1119
2008 and 2009, the economic
i,atween tes dropped from 4.3 percent
growth ra cent In Saudi Arabia, from 8.3
o15 per
.
.
to
• to 6•3 percent In Bahrain, from 5.1
…r.91lt
11″
to -0.7 In the UAE, and from 6.3
percen: 10 _1_5 percent in Kuwait. As we
.
.
Percen
canInfer from the article,
. non-01I-based
1 economies were a httle less affected
Nab
th8 global recession as they are less vulb~ ble to ·changes in oil prices (oil produc~eraaccount~ for a smaller portion of their
:pfumpared with.oil-based economies).
A lower inflation rate is the bless~ -ing of a low (or negative) economic
growth rate. This statement appears to
betrue when we examine it in the Arab
economies during the ‘recent global _economic crisis. People living in the Arab
0
••
A
enjoyed low inflation rates in 2009.
t Arab countries suffered from a twodigit Inflation rate In 2008 d
t
I
to th
ue no on y
e economic expansion in the period
prior to 2008 but also to the Increase In
the International prices of food and oil, as
we mentioned earlier In the chapter. The
global recession resulted In a reduction in
th
e aggregate demand, Particularly investor and consumer demand, which drove
Inflation rates down.
e
Following the same argument mentioned In Part (a), the rebound in
011
Prices in 2010 resulted in a higher
government revenues and GDP in oilbased Arab economies. In addition, as
we mentioned earlier in this chapter, Arab
governments conducted expansionary
fiscal policies by increasing government
expeMiture on some mega projects such
as building industrial cities, universities
nd
a
schools, and the infrastructure in
general, in order to mitigate the recession. These policies, along with the higher
price of oil, led many economic analysts
to predict a recovery in the Arab economies in the near future. The IMF recom mendation to d!versify Arab economies
was intended to make Arab countries less
vulnerable to fluctuations in the prices of
natural resources in -general, and of oil
prices specifically. Notice that this rosy
221
picture of economic recovery an d h’19her
economic growth rates is expected to
be associated with higher inflation rates.
This positive relationship between economic growth and Inflation is well-known
in econom ics , and reminds us of the
tradeoffs that policymakers usually face:
a higher economic growth rate usually
makes people suffer from a higher inflation rate.
Thinking Critically
About Policy
1. Many non-oil-based Arab governments
applied expansionary fiscal policies to
enhance economic growth during the
period 2009-2010. What do you think
the impact of these policies on the government budget in the short run and in
the long run? (Hint: non-oil-based economies usually rely on taxes to finance the
government budget). Will oil-based Arab
economies realize the same impact?
(Assume high oil prices).
2. Suppose that international oil prices fell
significantly. How would oil-based Arab
countries finance their mega projects?
What would be the expected effect
of the government finance on private
investment?
Percent
30
25
Percent
30
20
20
15
10
10
■ Egypt
■ Lebanon ■ Saudi Arabia ■ Syria
□ Jordon ■ Qatar
In
□ United Arab
Emirates
11-:’:::r~::i~~~n~:~~o~~:~
{a) GDP growth rates selectlteded :
Saudi Arabia, and the Un
ra
s la)
Arab countries (Egypt, Jordan, Lebanon, • nd yr ·
Sa11te: World De.-elopment indicators, the World Bank Group.
-20
■ Egypl
■ Lebanon ■ Saudi Arabia ■ United Arab
Emirates
□ Jordon ■ Qatar
O Syria
-30
(bl Inflation ratea In aelected oil-baaed Arab countrlaa (Qatar, Saudi Arabia,
and the United Arab Emirates) and no~il-baaed Arab countries (Egypt,
Jordan, Lebanon, and Syria).
Fall 2019
Econ 112
Principles of Macroeconomics
1) Read the article titled “Arab Economic Growth Predicted to Rebound after 2009 Drop”
(Pages 220 and 221) and answer the following questions:
A) What type of Arab countries suffered more because of the 2008 global financial crisis?
Why?
B) “A low inflation rate is the blessing of low or negative economic growth rate”. Do you
think that this statement is applied in the context of Arab countries after the 2008 global
financial? Why?
1

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