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Macro - Assignment Example

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Running Head: ABBREVIATED TITLE OF YOUR CHOICE (all caps) Macro Answer #1 Germany is an open economy, so its economy is affected by international competition and location of its product and factor market…
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Download file to see previous pages... (Riecher, 2013) Figure 1: Unemployment Rate in Germany1 Germany has been able to deal with structural changes efficiently as its policy doesn’t include laying off workers rather makes the work shorter hours. So when workers cut off their working hours, the government makes up half of the wages of lost working hours. This is a better alternative than being unemployed. Apart from that there a system known as hour bank where workers put extra hours during good times. So these hours could help to compensate in downturn where less hours is worked. Also the unions and management negotiate together on reducing working hours. (Baker, 2013) According to IMF Inflation in Germany by the end of 2012 was 2.137 percent and is expected by IMF that inflation will average to 1.6 percent in 2013. The economy is growing but is not putting an upward pressure in price. This is because the government is able to control inflation because of its tight monetary policy where it has maintained its currency strong too. (Stefan, 2013) Figure 2: Inflation Rate in Germany2 Answer #2 Germany is a part of European Union so it does not have its own money and can’t use its own monetary policy. It follows the policy that is set by the European Central Bank. Current Interest rate maintained by the European Central Bank is only at 0.5 percent. ...
So it is important for it to maintain balance in interest rate policy. (Stefan, 2013) Germany fiscal policy shows that’s its revenue as by IMF data has over the years accounting to 1201.38 billion expected in 2013 that is 44.372 percentage of the GDP. Its government expenditure as percentage of GDP amounts to 45.005 percent in 2012 and 44.703 percent expected in 2013. Government’s high share in expenditure is having negative effect on growth rate as it is not giving a room for private investments which has been low around 17.219 percent of GDP in 2012 and expected 17.369 percent in 2013. Low investment means low domestic demand for goods and services which needs to be created by the government. Also the tax rate in Germany on individuals income is progressive, higher the income, higher the tax rate which ranges around 14 to 45 percent on individuals income. Effective corporate tax rate is around 30 to 33 percent. It needs to make sure to reduce taxes in order to encourage more growth and investment in the economy. (Randow, 2013) Answer #3 Germany is the power house of industrial base and world’s second largest exporter. One policy Germans adopted was not to borrow money rather they focused to live with their own means as taking debt meant paying back with huge interest costs. They consider taking loan as doing something wrong and feel guilty for it. Germany made its labour market strong in 2003 when it came up with fundamental labour market reform. The government maintained good relations with labour unions in order to easily negotiate on labour wages. At same time workers kept working hours low keeping in mind it was better than to getting unemployed. This helped the economy to flexible in labour ...Download file to see next pagesRead More
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