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Macro O - Assignment Example

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Macroeconomics: Germany 1. Unemployment rate in Germany by September 2013 was 5.2%, a significant drop from 5.3% recorded in August the same year; the Germany employment rate is configured as the number of people searching for a job as a fraction of the entire country’s labor force (Heritage Foundation, 2013)…
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Macro O

Download file to see previous pages... The impressive employment and inflation figures in Germany may be attributed to sound economic policies that the country has held over the years. For instance, by reducing public spending and ensuring high standards of accountability in the government’s system, Germany was able to withstand the turbulent effects of the European debt crisis that affected some European countries, though the debt crises affected other Eurozone members leading to the current inflation rate in Germany. The country has the Euro as its main currency though undervalued compared to Deutschmark’s real value. Moreover, Germany is one of the countries that have managed to raise the working hour flexibility and reduction in structural unemployment. These factors have been critical in sustaining Germany’s economy, leading to a sound job market that translates in a low unemployment rate. Strong fiscal policies in public spending and deficit cuts have led Germany to reduce its debt burdens, a significant step towards controlling its inflation rates. However, Germany’s unemployment rate may be blamed on its transition system of education that holds many youths in vocational schools, which hardly translate to real job opportunities. Such transition schools do not offer skills that are relevant in the market, with graduates from these centres failing to secure jobs. One way to reduce the unemployment rate is to deal with policies that would encourage Foreign Direct investments, FDIs. Currently, FDI in Germany stands at $40.4 billion (Heritage Foundation, 2013). This is not enough for a country with a sound economy and better export terms than its Eurozone members are. By attracting FDIs, more economic activities will spur across the country, suggesting more employment and reduced inflation rates. 2. German fiscal policies are designed with a view to reduce unemployment levels and prevent any recessionary forces in the economy. For instance, in 2010, the government had to cut more than 14 million euros in taxes; in 2011, the government agreed to cut another 24 million in income taxes (Stifftung, 2013). The benefit of tax cuts as a fiscal policy in Germany was that the government managed to close a significant recession gap. The result was stimulated economic growth through encouraged consumption. Furthermore, the economy had a better chance to readjust while the government concentrates more in job creation. This explains why Germany has a stable economy considering the low taxation and increased employment opportunities. However, the disadvantage was that the government through these tax cuts reduced its budgetary allocations to important sectors in the development of the country. The country could have funded social development projects with the huge amounts of taxes forfeited in tax cuts. The European Central Bank is mainly responsible for Germany’s monetary policies (Stifftung, 2013). When the bank raises interest rates to curb rising inflation rates, the result is a change in the cost of living considering commodities will have unstable prices as a response to the interest rates increase. Most Germans would have to save rather than spend, faced increased costs of borrowing that hampered developments and higher interests rates for government debts. The increase would have a negative effect on both the government and Germans in general and may have slowed down development. However, such an increase in interest rates ...Download file to see next pagesRead More
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