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Fiscal Policy Case Study

Case Title:

Germany’s Economic Dilemma: To Save or to Spend?

Publication Year : 2004

Authors: Anand C Prasad & G Srikanth

Industry: General Business


Case Code: FCP0006

Teaching Note: Not Available

Structured Assignment: Not Available

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Germany, in common with the rest of continental Europe, has been suffering from a lack of demand, caused in part by the Germans' high propensity to save. Other European members, subject to similar macro economic constraints, have done far better. What really sets Germany apart from its more successful European neighbours are its structural rigidities, its high wages and non-wage labour costs, and a rigid labour market. Schröder, who came to power promising economic revival, met only partial success. His economic policies could not revive consumers' confidence, and left them in a state of suspended animation - to spend or to save.

Pedagogical Objectives:

  • To discuss 'how the propensity to save' can have an adverse or favorable impact on a country's economy
  • To discuss the effectiveness of Keynesian economics in reviving European members' economies within the constraints of the European Union's 'stability and growth pact' and the European Central Bank's monetary policy decisions.

Keywords : German's propensity to save, The German economy, Gross domestic product, Private consumption, Gerhard Schroder, Economic recession, German reunification, European Union (EU), Social market economy, Monetary Policy Case Study, Corporate taxation, Federal budget expenditures, Social security, pension reforms, Unemployment in Germany, Business confidence, Mittlestand companies

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