Economics Homework Help

According to the articles and the data, what is Brazil’s fiscal policy problem in 2018?

a.The deficit is too

large as a share of GDP, and spending cuts are needed. This policy will bring the output back down to potential, and reduce the unemployment rate. 

b.The deficit is too large as a share of GDP. Spending cuts are needed, but output is less than potential, so this policy could increase an already high unemployment rate.

c.The deficit is too small compared to GDP. Spending increases are needed, and this will help solve the problem of high unemployment, by increasing real GDP growth and bring output back towards potential.

d.The deficit is too small compared to GDP. Spending increases are needed. This policy will push output further above potential, and raise an already too high unemployment rate. 

Wall Street Journal, Feb. 28, 2019 

SÃO PAULO—Brazil’s economic growth disappointed in 2018 after a truckers strike almost halfway through the year slammed manufacturing, and government- and consumer-spending restraint sapped demand. The 10-day strike at the end of May, during which truckers blockaded highways around the country, halted shipments to factories, shops and hospitals and hurt Brazil’s key agricultural sector by slowing exports and deliveries of needed supplies. Brazil held presidential elections in October, and the outcome was unclear for months before voting, pushing many of the country’s businesses to hold back on investment. An economic crisis in neighboring Argentina, a major market for Brazilian industrial exports, also hit demand for those products. “All those things have negative effects on growth,” said Pedro Ramos, head of economic analysis at Porto Alegre-based financial cooperative Sicredi, adding that Brazil has passed through several tumultuous years that have included a deep recession, a president being impeached and removed from office and a giant corruption scandal centered on the country’s biggest company and its construction industry. “It’s hard for the economy to grow, to find companies to invest here, with so much volatility,” he said. Former President Michel Temer, who took office in 2016 after President Dilma Rousseff was ousted, reined in spending as he struggled to control the budget deficit and reduced domestic demand as a result. Government spending was stagnant in 2018 compared with 2017, according to the IBGE. With the inauguration on Jan. 1 of President Jair Bolsonaro, after an election campaign in which the law-and-order candidate also promised to make changes to the country’s insolvent pension system, economists and investors are cautiously optimistic about growth in 2019. Indeed, some businesses in Brazil say they already saw a change in sentiment starting in the fourth quarter of last year, after Mr. Bolsonaro’s lopsided election victory, and economists are forecasting economic growth of about 2.5% in 2019.

Wall Street Journal, March 29, 2019 

BRASÍLIA—Brazilians elected former army captain Jair Bolsonaro as their president on his resolute oath to end a political culture of kickbacks and backroom wheeling and dealing. His administration, trying to build a majority in congress to approve a vital pension-system overhaul, has been delayed by feuds with the leaders of an alphabet soup of small parties that demand jobs in exchange for votes. “There are 12 million people unemployed, 15 million living below the poverty line, the government’s investment capacity is shrinking, 60,000 murders,” said Lower house speaker Rodrigo Maia. “And he keeps pretending he is governing.” However legitimate Mr. Bolsonaro’s political experiment may be, the Brazilian economy can’t get help soon enough. Since 2014, the government has been borrowing to cover expenses, pushing public debt to nearly 80% of total output. Previous presidents have tried—and failed—to fix the main culprit: an insolvent pension system that allows many public servants to retire in their mid-50s on full salaries. With pension spending now taking up about 44% of the federal budget, many economists see Mr. Bolsonaro’s pension-reform bill as the last hope to avert a financial crisis in Latin America’s biggest economy. Last month, Mr. Bolsonaro’s administration presented a bill that would impose a minimum retirement age and raise contributions, saving the country about $270 billion over the next decade according to government calculations. For the bill to pass, Mr. Bolsonaro needs to secure the support of more than three-fifths of votes in both houses of congress. Investors are skeptical that he will succeed. Brazil’s currency sank near a six-month low this week over worries that the pension reform would be delayed and watered-down.