Microeconomics Case Study

Business Confidence? Very High; Consumer Spending? Very Low: How to get the German Consumer to Spend More?

OR

Abstract:
The world’s third largest economy, Germany, witnessed a CAGR of just 1% during the period 1999-2004, which was one of the lowest in the G8 countries. Low consumer spending was cited as the main reason for the dismal economic performance, which had resulted in low domestic demand and high unemployment rates. However, in 2006, Germany’s business confidence index reached a 15-year high, invigorating the economy. Meanwhile, analysts projected it to be a temporary phenomenon, which was the result of the frenzied infrastructure development and business activities in preparation for hosting the 2006 FIFA World Cup.

Pedagogical Objectives:

• To understand the relationship between consumption and saving
• To understand the relationship between employment, demand, inflation and GDP
• To discuss whether the rise in business confidence index of Germany is real or is just a temporary phenomenon
• To discuss the economic impact of hosting international events like the FIFA World Cup
• To discuss the reasons for the low consumer spending in Germany
• To discuss measures that would encourage the German consumer to spend more and thus revive the economy.

Keywords : Macroeconomics Case Study, Consumption Savings, Business Confidence, Domestic Demand, Managing Budget Deficits, Monetary Policy Fiscal Policy, Economic Reforms, Managing Inflation, Labour Policy Reforms, Minimum Wage Policy, Economic Impact of Hosting FIFA World Cup