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In 2014 --- two years after the worst of the European crisis --- Portugal's net exports were equal to 1.8% of GDP. Additionally, after a

In 2014 --- two years after the worst of the European crisis --- Portugal's net exports were equal to 1.8\% of GDP. Additionally, after a few years of tight budgetary discipline, the Portuguese government was running a surplus of approximately 2.0\% of GDP. Finally, total investment by the private sector was unusually large, at about 15\% of GDP. GDP itself stood at 180 bn\euro.

a. Assuming that the trade balance was equal to the current account balance, was Portugal receiving or sending capital abroad? What were net capital flows equal to?

Given your answer above, do you expect private savings to be smaller or larger than investment? With the information given, can you derive the level of private savings in 2015?

Portugal can be considered a small open economy; the relevant interest rates for savings and investment decisions are largely determined outside the country, and in particular by the decisions of the European Central Bank. If Portugal were to become a closed economy, all else equal, would you expect the prevailing interest rate to be larger or smaller than Europe-wide interest rates? Justify your answer using a Savings/Investment diagram.

. Two recent developments are likely to affect the outlook for Portugal next year: first, the government is considering launching a large stimulus program, which would result in a budget deficit; second, the ECB might take policy actions to lower Euro-are interest rates further. What do you expect the effect of these policies to be for the trade balance of Portugal? Use a Savings/Investment diagram to justify your answer

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