Sample Assignment on Economics PDF

Running head: ECONOMICS ASSIGNMENT
Economics assignment
Name of the student
Name of the university
Author note

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Table of contents
Introduction................................................................................................................................2
Macroeconomic challenges faced by country in long term.......................................................3
Cause of the problem.................................................................................................................4
Impacts on economy and society...............................................................................................6
Policies by government to solve the probe................................................................................8
Conclusion..................................................................................................................................9
Reference list............................................................................................................................11

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Introduction
The article states about the unemployment rate of Spain which feel to a nine year low
in the third quarter. The rate of joblessness declined to 16.4 percent in the last three months
of the year 2017. With increase in hiring in the construction, industry and services, the rate of
growth of unemployment have fallen down to a nine year low. Spain had experienced a
constitutional crisis in the year 2017, which is termed as Catalan crisis. In case of Catalan
crisis, there had been an ongoing political conflict which took place between the government
of Spain and the government of Catalan. It took place over the issue of Catalan independence.
The joblessness have increased to 26% few years ago. Spain had been experiencing nearly
the highest level of unemployment in the developed world. The youth unemployment is also
higher and had been at 42%. There had been many factors which had suppress the labor
market in Spain. Spain have also experienced a negative growth of the gross domestic
product until 2013 (Ruiz, Stupariu and Vilariño 2015). The major reasons behind the
mounting rate of unemployment are shaky foundations of the economic model, rigid labor
markets, banking crisis and corruption, crisis in the education system and increased in the
flow of immigrants. Unemployment had been one of the major problems in Spain and it is
higher than in other western European countries. Due to the economic crisis which took place
in 2012 and 2013, the rate of unemployment had rose even higher. Spain had also known to
have faced one of the highest rate of unemployment in the European Union. When compared
to the other OECD countries, it still suffered from the highest unemployment rates. In the
recent years Spain have also known to have shed around 203,000 jobs. The job creation has
also experienced the worst in the month of august 2008. The paper will mainly focus on the
financial crisis of which Spain had suffered from 2008 to 2014. This financial crisis is even
referred to be the “Great Recession” in Spain. In this situation, Spain had a debt crisis when
the country was not able to bail out its financial sector. The paper will also state about the

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SAS
P
REAL GDPREAL GDP
LAS
LAS3
SAS
SAS
LAS2LAS1
weaken growth model of Spain leading to crisis, the consequence of the banking
intermediation in a tentative bubble and the effects of extrinsic disequilibrium.
Figure 1Long run and short run aggregate supply
In case of long run aggregate supply, there is a net change in the Potential GDP due to
change in the aggregate labour hours and change in the labour productivity.
In case of short run aggregate supply, there is also change in the potential GDP and in
the cost of production. The diagram also shows the change in wages, resource pric and
government polices.
P

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AD
P
ADI= C+I+G +(X-M)
AD
AD2
AD3
Figure 2 Aggregate demand
There is a change in expectation of household and firms along with change in government’s
demand side policies. There is a change in word economy and change in spending variable in
aggregate demand.
Macroeconomic challenges faced by country in long term
The banking industry of Spain have remained quite speculative in case of funding
corporations. The economy of Spain have also entered in recession. Low efficiency in the
public administration have also affected the productivity of the firm negatively. The overall
growth of Spain in 2016 was around 3.2%. The five major challenges that the economy of
Spain have faced are low rate of consumer consumption, huge amount of debt, large scale of
emigration, income disparity along with high unemployment rates.
The wage moderation have declined competitiveness in the product market with the
growth of consumption which fell during 2016 as the tax cut have ended (Fernández and
García 2017). Therefore it can be said that a decrease in the competitiveness of the business

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will be having a negative impact on the consumption of the consumer and it tends to decline
of the consumer confidence in the third quarter of 2015.
As a result of poor employment rates, there had been a huge rate of emigration out of
Spain which had reflected in the attitude of the job market which will be not improving in the
near future. In the year of 2015, the emigration reached a high of 50,844. As there were more
skilled workers compared to the available jobs which have contributed to emigration.
Another reason behind the financial crisis is the high rate of unemployment which had
increased to 2.5 percent in the year 2014. Although the rate remained high even in 2016. In
the year of 2014, the rate of unemployment was 51.8%. The macroeconomic adjustment
process in the dual and the rigid labor market resulted in the destruction of the employment
which have recently started to stabilize.
Figure 3Aggregate expenditure model
The 2008-2014 Spanish financial issue was also known to be the Great Spanish
Depression which started at the world financial crisis of 2007-2008. The financial crisis made
the country a late contributor in the debt crisis that took place in European sovereign when it
had to pay €100 billion rescue package which was given by European Stability

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Mechanism. The recession which Spain was experiencing was a multifaceted crisis with the
public sector, financial system, corporate sector and households all together involved in the
evolving process. The financial crisis took place as the economic activity had been only
biased towards construction and real state which took place as a result of regulation of labor
market which took place mainly because of temporary and seasonal jobs. Secondly due to the
housing market which provided huge scope for expanding the demand and supply and the
product and labor markets which are being poorly regulated leading to dual economy.
Cause of the problem
The main cause behind the financial crisis of Spain was the housing bubble and the
unsustainably high degree of growth of the gross domestic product. The huge amount of tax
revenue has taken place as a result of property booming investment where the revenue is kept
in surplus. The banks at that time were also able to hinder losses and the earnings volatility,
deceive the investors, analysts and also financed the Spanish real estate bubble. The impact of
the crisis were highly drastic in nature for the Spanish economy. It have resulted in the
economic downturn which have resulted in the rise of unemployment or bankruptcies. In the
year of 2012, the global economic activity started to decelerate resulting to complex
macroeconomic and financial environment in the euro area. This also resulted to slowdown in
the pace of growth of all the emerging economies leading to low growth of the world trade.
Employment crisis: the rate of unemployment have hit 17.4% in the month of March
2009andthe total jobless have doubles in the next year where nearly two million people lost
their jobs. By the month of July 2009, it has known to have shed around 1.2 million jobs
within a year and by March the rate of unemployment in Spain reached 24.4% which is
double the Eurozone aggregate. The unions then started a general strike as a result of job cuts
and low wages. Large scale of immigration took place and continued throughout the 2008,
however by 2011, the total number of people leaving the country had taken over the number

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of arrivals which made Spain, the emigrant country 2013 (Ruiz, Stupariu and Vilariño 2015).
The sluggishness of the growth of the gross domestic product continued to stay until the mid-
2013. The worsening situation of Greece in 2012 along with the recession taking place
heightened tensions in the economy. In the early 2012, the funding conditions of the markets
for the Spanish banks became much tighter. Another factor which resulted to huge rate of
growth of non-employment in Spain is associated to the structural traits due to the labor
market. This resulted to a high rigidity of wages and hours worked by the workers. The
segregation of the labor resulted to a dual market labor where the labors with increased wages
coexist with the low wage earners with little protection. This is why the rate of
unemployment was much higher than the average. The sharp appreciation of the real
exchange rate also resulted to high rate of unemployment.
Figure 4 Rate of unemployment
One of the main reason behind the financial crisis in Spain was the housing bubble the
price of the real estate rose to about 200% from 1996 to 2007. More than 500, 000 new
properties were built in Spain in the year 2004 and 2005. In the country of 16.5 billion
people, there were more than 20 million houses where 3-4 million houses were empty.
When there was a presence of speculative bubble in Spain, it became one of the nastiest

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affected nations. Between the years 2007-2008, Spain had experienced the sharpest plunge in
construction. The bust of the housing bubble along with the financial crisis had resulted to
sharp current account adjustments. At the time of pre-crisis in the economy, Spain had
created some features which lead to the formation of the housing bubble. The hosing bubble
took place as the banking sector was much capable of attaining external funding in order to
change it in to mortgage credit and also a construction sector which was supported by the
European structural funds, which resulted in rising of the new houses and infrastructure. The
transformation in banking and regulations of land also provided a rise to the speculative
housing boom.
Impacts on economy and society
The downward phase of the Spanish economy of the development cycle began in
2007. After few years the economy although recovered. As an outcome of the financial crisis,
the economy went in to recession in 2009 (Cabrera de León et al. 2018). The recession
period was also quite long in the period of recession. The toughest time of the crisis took
place because of the product breakdown and also as a result of destruction of job in the year
2009he gross domestic product fell down to 6.3% and the unemployment took place around
800,000 people. The economy of the country although started to recover in 2010. The
development of the output was also known to be 0.6% which was diffident when judged
against the production loss. Due to the financial crisis taking place the unemployment rate
raised to 8.3% in late 2007to 20.1% in the late 2010. Between the year 2007 and 2010, the
rate of unemployment in Spain increased from 8.3% to 20.1%. Throughout the years from
2010 to 2014 there has been extensive growth in the long term unemployment level which
comes to 42.5% of the total (Lozano-Vivas and Martinez-Alba 2017). The growth of the level
of unemployment has lead to a differentiating aspect in case of crisis in Spain. It was also
been found out that the unemployment increased mainly among the young workers. The

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financial issue of the economy has lead to a decline in the output and also an extensive rise in
case of unemployment. Also the explosion of the real estate bubble has resulted to a very
strong shock on the economic operations of Spain and on the employment. The real estate
activities along with the high exposure of the banking also lead to housing crisis in the
banking industry. The main source of issue of the Spanish economy is the huge amount of
the private debt which took place as an outcome of increased amount of liabilities of business
and households. The rise in the rate of debt of the private sector was five times more than in
the Eurozone. The public debt of Spain mounted to 60.1% of the gross domestic product in
the years of financial crisis. The economic recession resulted to a significant drop in the
incomes of the firms and households which refrained the growth of the private debt. In the
year 2012 and 2013 the macroeconomic situation worsened rapidly which resulted to fall in
the gross domestic product which fell down to 4.2%. The financial sector was also becoming
increasingly unstable in nature with marked increase in the non-performing assets, with a
sharp decline in lending. The rate of unemployment was much less in the year 2006 and 2007
Figure 5 Growth of GDP

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Policies by government to solve the probe
The banking sector reforms
The banking system of Spain has been stated as one of the best and the best equipped
from all the Western economies so that it can cope with the liquidity crisis of the world. The
starting of the crisis suggests that it was quite essential to move faster along with a changing
process. The reform of the Spanish banking system mainly comprises of the three objectives
which resulted to reorganization, capitalization and recognition of loses (Cabrera de León et
al. 2018). The institutional framework of the Spanish labor market creates an
intergenerational injustice. Some of the main features of the reforms comprises of increase in
the hiring with the help of reducing compensation of the objective, the porch of the workers
which can be employed through the agreements of promotion of employment, introduction of
the new restrictions in the temporary hiring and on contraction duration for services and
work. A financial crisis takes place when the money supply have outpaced by the demand of
money. The government in case of financial crisis have reduced the rate of interest and
increased the extent of liquidity which has given the banks more money to lend in the market
(Reinhart, Reinhart and Tashiro 2016). The government can increase the supply of money
with the help of quantitative easing. The low inflation, low-priced euro and fall in the energy
prices with the renewed financial stability in Europe supports the spending of the consumer.
Conclusion
The two main reasons behind the financial crisis of Spain was the housing bubble
with the high extent of growth of the gross domestic product. There is a huge amount of the
revenue from the tax which resulted from the investment of property and also from the
construction sectors. The problems that are generally encountered by the Spanish economy
are usually not because of the cyclical downturn. The effect of the financial crisis on the
economy of Spain have resulted a sharp decrease in terms of output and therefore a huge rise

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in the rate of unemployment. The burst of the real estate bubble provided a very extensive
shock on the activity of the economy of Spain and unemployment. The increased exposure of
banking to construction and the operations of the real estate was the process of transmission
of the housing issues into the banking industry. On top of that the Catalonia crises have also
disrupted the recovery of Spain. After the crisis of about four years long, the economy of
Spain became stagnant with only little prospects of recovery. The recovery of the economic
activity will be remaining moderate due to many reasons which includes negative
assumptions on the development of the public consumption and of investment in housing
which took place in both 2011 and 2012. The recovery of the economic growth is quite
strongly affected by the increased level of debt which is specially the private debt along with
high rate of unemployment. Therefore, it can be said that the difficulties of the international
market along with the adverse situation of the financial sectors can adversely impacts the
banking system which will pose issues for the economy.

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Reference list
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challenges, and alternative perspectives. Palgrave Macmillan.
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Rodríguez Pérez, M.D.C., Brito Diaz, B., Aleman Sanchez, J.J. and Aguirre-Jaime, A., 2018.
Austerity Policies and Mortality in Spain After the Financial Crisis of 2008. American
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children in rich countries. Children of Austerity: Impact of the Great Recession on Child
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Fernández, R. and García, C., 2017. Wheels within wheels within wheels: the importance of
capital inflows in the origin of the Spanish financial crisis. Cambridge Journal of Economics,
42(2), pp.331-353.
Hein, E., Detzer, D. and Dodig, N. eds., 2016. Financialisation and the financial and
economic crises: country studies. Edward Elgar Publishing.
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impact of the Euro crisis. Multi-level finance and the Euro crisis: causes and effects, p.175.
Lozano-Vivas, A. and Martinez-Alba, F., 2017. Banking Stability and the Financial Cycle:
The Spanish Experience.
Martín-Oliver, A., Ruano, S. and Salas-Fumás, V., 2017. The fall of Spanish cajas: Lessons
of ownership and governance for banks. Journal of Financial Stability, 33, pp.244-260.

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Maudos, J. and Vives, X., 2016. Banking in Spain. In The Palgrave Handbook of European
Banking (pp. 567-601). Palgrave Macmillan, London.
Perles-Ribes, J.F., Ramón-Rodríguez, A.B., Sevilla-Jiménez, M. and Moreno-Izquierdo, L.,
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