Evaluate export-led growth as a strategy for a developed economy.
4.1.2 · 2.2
Germany supports it- Decades of high employment and high wages in manufacturing.
- Large surpluses built up foreign assets.
- Exporters invest heavily in R&D and skills.
Germany warns against it- Exports fell three years running (2023–25); GDP barely grew.
- Exposed to US tariffs and Chinese competition at once.
- Kept consumption low (~53% of GDP).
ChainWorld demand for German goods ↓ → exports ↓ → (X−M) ↓ → AD ↓ → output and jobs in manufacturing ↓ → negative multiplier hits suppliers and services.
JudgmentIt works while world markets are open and growing. Germany shows the risk: an economy built on exports has few defences when trading partners turn protectionist or become rivals.
Assess the impact of a large rise in energy prices on a manufacturing economy.
2.1.2 · 2.3
Severe- Russian gas (~55% of imports) cut off in 2022.
- Inflation 6.9% in 2022; recession in 2023.
- Chemicals closed plants; output fell three years running.
Softened- Gas imports switched to Norway and LNG within a year.
- €200 bn energy shield protected households and firms.
- Energy efficiency and renewables reduced demand for gas.
ChainGas price ↑ → costs of production ↑ → SRAS shifts left → price level ↑, real output ↓ → exports less competitive against US and Chinese rivals.
JudgmentThe impact depends on energy intensity and on whether higher prices last. Germany's damage was lasting because energy stayed dearer than in competing countries, which shifts comparative advantage.
Evaluate the use of fiscal rules to control government borrowing.
4.5.3 · 2.6.2
Benefits- Debt only 63.5% of GDP (2025), lowest in the G7.
- Low borrowing costs and room to borrow in crises.
- Credibility with markets and euro partners.
Costs- Years of underinvestment in rail, roads and digital networks.
- Rule had to be loosened in 2025 for defence and infrastructure.
- Rigid rules can force cuts in a downturn.
ChainStrict deficit limit → public investment cut first (easiest to delay) → infrastructure ages → firms face higher costs and delays → LRAS grows more slowly.
JudgmentRules help when they separate investment from day-to-day spending. Germany's original rule treated them the same, which is why it was reformed.
Assess the costs and benefits of membership of a monetary union.
4.1.5 · 4.1.8
Benefits- No exchange-rate risk with the biggest export markets.
- The euro is weaker than a German currency would be: exports cheaper.
- Lower transaction costs in the single market.
Costs- ECB rate rose to 2.5% in 2026 while Germany stagnated.
- No currency to devalue in a downturn.
- Large intra-euro imbalances (Germany surplus, others deficits).
ChainSingle interest rate set for the eurozone average → too high for a weak Germany → borrowing costs above what the economy needs → C and I lower → slower recovery.
JudgmentGermany has gained more than most members through a competitive exchange rate. The cost appears when its cycle differs from the rest of the eurozone, as in 2023–26.
Evaluate vocational education and training as a supply-side policy.
2.6.3
Effective- Around 1.2 m apprentices in the dual system.
- Youth unemployment among the lowest in Europe.
- Firms get skills that match their needs; high productivity.
Limits- Skills tied to cars and machinery may age as industries change.
- Less suited to software and AI skills.
- Firms still report skilled-labour shortages.
ChainApprenticeships → higher human capital → higher labour productivity → lower unit costs and better quality → LRAS shifts right and exports more competitive.
JudgmentStrong for a stable industrial economy. The weakness shows when the economy needs to switch sectors quickly, as Germany must now.
Discuss the economic effects of an ageing population in a developed economy.
2.3 · 4.5
Negative- 23.7% aged 65+ (2025); population fell in 2025.
- Skilled-labour shortages hold back output.
- Pension and health costs rise; fewer workers pay tax.
Can be offset- Net migration: Skilled Immigration Act (2023).
- Automation: Germany is a leading user of industrial robots.
- Later retirement and more women in full-time work.
ChainBaby boomers retire → labour force shrinks → LRAS grows more slowly → lower potential growth → dependency ratio ↑ and pressure on public finances.
JudgmentThe effect depends on migration and productivity. Germany's ageing is faster than the US's, so the pressure on growth is greater.
To what extent is a current account surplus a sign of a strong economy?
2.1.4 · 4.1.7
Strength- Competitive, high-quality exports.
- Surplus €197 bn (4.5% of GDP, 2025) builds foreign assets.
- Income from those assets in future, useful for an ageing society.
Weakness- Reflects weak domestic spending and investment.
- Surplus partly due to a euro kept weak by poorer members.
- Draws criticism and tariffs from trading partners.
ChainHigh saving + weak domestic investment → output exceeds domestic spending → surplus goods exported → current account surplus → capital flows abroad.
JudgmentA surplus can mean competitive firms or weak home demand; Germany has both. Stagnant GDP alongside a large surplus suggests weak home demand matters a lot.
Assess the impact of competition from emerging economies on manufacturing in developed economies.
4.1.1 · 4.1.9
Big impact- German brands' China car sales −25% in five years.
- Imports from China €170.6 bn vs exports €81.3 bn (2025).
- VW job cuts; supplier insolvencies.
Less than it looks- Germany still leads in premium cars, machines and niches.
- Cheaper Chinese inputs lower costs for German firms.
- EU tariffs on Chinese EVs (2024) give some protection.
ChainChinese firms gain scale in EVs → lower costs and prices → German market share ↓ in China and Europe → output and jobs ↓ → structural unemployment in car regions.
JudgmentImpact depends on whether firms can move up the value chain faster than rivals catch up. In EVs and batteries China moved first, so the threat to Germany is larger than in earlier rounds of globalisation.
Evaluate higher government investment spending as a way to raise economic growth.
2.6.2 · 2.5
For- €500 bn fund for roads, rail, schools and grids.
- Low debt (63.5% of GDP) gives room to borrow.
- Raises AD now and LRAS later.
Against- Planning delays and shortages of builders slow spending.
- May push up construction prices rather than output.
- Higher bond yields could crowd out private investment.
ChainG ↑ on infrastructure → AD ↑ via multiplier → output and jobs ↑ → better transport and energy networks → lower costs for firms → LRAS ↑.
JudgmentStrong case when the economy has spare capacity and debt is low, as in Germany. Success depends on how fast and well the money is spent.
Evaluate policies to limit unemployment during a recession.
2.1.3 · 2.6
Kurzarbeit worked- Unemployment barely rose in 2009 despite a deep recession.
- Used again in 2020; firms kept trained staff.
- Faster recovery because workers were already in place.
Limits- Expensive for the state.
- Delays needed shifts out of declining sectors.
- Less useful when the problem is structural, as in cars today.
ChainState tops up wages for cut hours → firms keep workers → no rise in cyclical unemployment → incomes and C protected → smaller fall in AD.
JudgmentIdeal for a short, cyclical shock. For a structural decline, money is better spent on retraining and helping workers move.