For this peer reviewed exercise, we returned to Spain. Not only because that's where the IE is but also because it presents such interesting contrasts on some of the data that we're working with. You worked with the IMF data here so that you learned another data source that as I said is available for most countries in the world. So, it is not limited to the developed countries. I asked you to look at first, savings and investment, total savings and total investment in Spain, in two time periods, we looked first at 2004 to 2012, and then we looked at 2013 to 2018. You would found that in the first period up to 2012, investment was greater than savings. In the second period, savings was greater than investment. So, based on what you know from our second course trade, immigration, and exchange rates in a globalized world, you know that in a country where investment is greater than saving they will tend to be a current account deficit, because the country is spending more than the funds it has saved, or it is consuming more than it produced. Was the way we talked about it in that course. So, we expected in the 2004 to 2012 period the country would register current account deficit. In fact it does, which is very interesting. In the second period you see that this profile changes. The country moves to a place where savings is greater than investment. That would mean, that they're saving more than they're able to spend or that they are producing more than they actually consume. We would predict that this situation would lead us into a current account surplus, and in fact it does. So, if we look at those two periods, we find in the early period 2004 to 2012 when the country was during part of this time in a large inflationary gap, as we mentioned in the last part of the first of the assignment, the country had a very large current account deficit. It reaches a maximum about 10 percent GDP which was the largest in the world in 2006 to 2008. But in the second period when savings becomes greater than investment, we would expect and do find that the country has a current account surplus, and that surplus reached a maximum of two percent of GDP and continued over this entire period 2016 on it was around two percent of GDP. So, this is an interesting match with the theory we discussed in the course. I asked you then, to think about the risks involved in these two different situations. So, here you have one country, two different risk profiles depending on what its current account looked like. We thought about current account risks basically in three areas although we could add currency but we'll address that in another question. We have thought about the demand risk. If a country is a current account deficit country, it doesn't have a lot of demand risk it can drive its own demand but the risk it has has to do with international borrowing or lending. The country has to borrow internationally in order to cover its extra need for funds, since savings is smaller than investment or sense consumption is larger than production. So, Spain in the early period had that risk that it had to borrow internationally in order to cover its excess spending. In the second period, same country different profile, the country becomes a current account surplus country. So, now it has different kinds of types of risks. One is that it relies on foreign demand in order to be able to grow. That is a risk. In terms of foreign borrowing or lending, it now has to lend internationally, and that exposes it to the third kind of risk which is the credit worthiness of the country's it lends to. So, I think it's an interesting contrast. One single country whose risks change very substantially because the savings investment relationship changes. Therefore the current account moves from deficit into a surplus. I asked you also to think about what would have happened to the currency had Spain had its own currency in these two different periods. We would expect of course all things remaining equal, which is always tricky. But if everything else were equal in the two periods, we would expect in the period of the current account deficit, Spain's currency if it had had one should fall. In the period of the current account surplus Spain's currency if it had had one apart from the euro should have risen. That is all other factors remaining equal. Finalli I asked you to think about how the government could have addressed those imbalances: the deficit in the early period, the surplus in the later period. If the government had wanted to get rid of the current account deficit, it would have to reduce absorption, it would have to reduce domestic consumption of GDP. Now, GDP is consumed domestically through consumers, investors, and the government. So somehow, the government would have had to get people to spend less or spend less itself, or it would have to encourage investors somehow to spend less. In the later period to get rid of the surplus, the government would have to get absorption to rise. In other words it would have to do things to stimulate consumption, investment, and government spending. So that the country were able to consume more of its own output and close that gap between what it produces and what it consumes which is less. So, I hope you've enjoyed this exercise because it is fascinating to find a country with two such different profiles in a period of less than 20 years.