For this first part of the Capstone Project, for your peer reviewed exercise, for understanding economic policymaking, I asked you to work with the data from the OECD. You may not have been familiar with the OECD, but this is a think-tank established after World War II, for the developed countries, and probably has the best data you can find anywhere for this very specific group of countries. If you like data, going to their website is like walking into a candy shop, it's all kinds of things on the shelves. Anyway, I asked you to answer some very specific questions. The first question, for Spain, in the 2000 and 2008 period was, what kind of gap do you detect in Spain? So, here we're diagnosing what's going on in the economy. You could see very clearly by using this output gap indicated, which the OECD publishes, which is a gem because it doesn't leave you trying to guess what the appropriate growth radius, it just measures the difference between how fast Spain should grow and how much it is growing. You would have detected for this period, that Spain has a positive output gap, or what we called in the course, an inflationary gap for the whole period. This gets to be very large. It's actually four percent at its peak. So, this is an economy that was growing too fast, that was overheating in the 2000 and 2008 period. Then, I asked you to look at whether unemployment and inflation behaved as you would have expected in this period? Now, since there was a positive output gap, you would have expected unemployment to fall and inflation to rise, and in fact they did. We find that unemployment is actually pretty high. It reaches a minimum of eight percent in this period and from many countries, we would see much lower unemployment rate. Inflation is also pretty high. It's above the two percent, that's normal for central banks to pursue for most of the period. So, that's a problem, but you would see that the two fall together. If you did a scatter plot, or even if you just eyeballed it, you would see that a Phillips curve emerges for the 2000 and 2008 period. A down sloping curve showing inflation on the vertical axis and unemployment on the horizontal axis. Then, I asked you to determine whether fiscal policy looked appropriate for Spain in the 2000 and 2008 period. Now, this is hard to determine. So, we're just approaching a little bit the question by looking at the output gap, knowing we're in an inflationary gap, and then seeing what happened to the country's fiscal deficit in this period. You find that Spain actually surprises us, by moving into a surplus in the later part of the period. The budget is in a surplus, quite a large surplus, which is appropriate. We don't see this very often, so this is somewhat of a surprise. The surplus hits a maximum of two percent of GDP in this period. Then, I asked you to determine whether that country's debt was a risk. Well, again, that's a complex question. We have to know if the debt is domestic or external domestic or foreign? Whether it's held by people in the country and whether it's in the own currency or a different currency, and you didn't have this data. So, I'll just tell you Spain's debt was all domestic. It had no foreign debt. But, what you can see that's very encouraging as a sign of the stability of the country, is that the debt goes down as a percent of GDP. In fact, it hits a low of only 45 percent of GDP, which is quite an impressive number, if you've looked at other countries. We would also think about debt service as a percent of GDP, and that's also very low in this period, in the data that you have downloaded. So, we can probably conclude that Spain was in a good debt situation, that it was not risky. Then, I asked you to think about monetary policy, whether it was appropriate for the country's situation, and here we have some problems. You know the country is in a very large inflationary gap, and yet we find that interest rates are low. They're declining for part of this period. When we compare them with the headline inflation rate, we find the interest rates are actually negative for a large part in this period. This means that there was a risk in Spain, that bubbles could develop, and this is something we talked about in understanding economic policy making. In fact, if you know anything about Spain, you know that bubbles did develop in this period. That it developed one of the largest housing bubble seen anywhere in the world, exactly in this period. So, I hope you can see through this review of the data, that it's important what authorities do in the economy. Now, Spain in this period, was not exercising its own monetary policy. The European Central Bank was carrying out monetary policy for Spain, fixing its interest rates, but those interest rates were too low for the country. So, in an overall picture that looks pretty good, we find some risks; inflation's kind of high, unemployment is quite high, and monetary policy is too expensive, for a country in a situation like Spain was in 2000 and 2008.