1.

What critical issues were raised after examining/reading Brazil’s Development Problems and
Prospects?

Based on the Case Study about Brazil’s Economy, I can say that that there’s a myriad issues that
were raised including health, corruption, unemployment, political situation, education, income
distribution, inflation, poverty, inequality, and most importantly, the concentrated distribution of
resources. All of these factors explain why Brazil has experienced growth without development as
could be expected from it’s income level. These insurmountable economic barriers stop them from
becoming what they want to be. In short, the reason why their economy has failed to develop is the
failure of their policy makers to extract the potential of their resources, to allocate those resources
equitably to increase consumption of of the poor and to investment, and to channel their attention
into productive industries in the correct priority.

2. Why is domestic savings important for an economy? What is its crucial role in the economy?

Domestic savings is important for an economy because the accumulation of domestic

savings would help stabilize a country’s economic situation. Greater dependence on domestic sources
facilitates a more successful implementation of any planned economic development. It is important
to understand that foreign capital cannot create permanent basis for higher standard of living. Having
a stable domestic savings could be a leeway, a starting point for a country to slowly reduce
unemployment, enable greater development, and increase their GDP and people’s well being. This
strategy will reduce risks to the country’s economy as one of the major problems faced by some
developing countries, like the Philippines, is the burden of external debts and dependence on
international banks.

3. What should government do to increase domestic savings?

The government should focus in improving the saving and investment policies and increase
production. I think one of the reason why there is a relatively low domestic savings to other countries
is because of policies that are implemented prematurely. For example, the government can
incentivize savings by changing the relative interests related to it, either increase it or give more
benefits. Having a sound monetary policy will be the cornerstone to increase domestic savings.

4. What happens when a government over borrow, over tax ad under invest?

If a government over borrow, it can lead to trade imbalances and even financial crises in the long
run. It would have a domino effect in the economy as it will incur higher debt interest, increase tax
collection, and inflation. Higher tax collection will also yield negative effect on the economy. Over
taxing can also discourage work, savings, and investment. It causes inadequate incomes for the family,
low wages, high prices, low purchasing power and even permanent economic recession if not given
immediate attention. All of these could also lead to under investment of the government. And if there
is under investment, the government will not be able to create public infrastructure that is essential
for long term economic growth and societal well-being like roads, housing, school buildings, hospitals,
and communication networks.