1.This question is based on the article, "The German economy: Clouds ahead", published byThe Economiston June 7, 2014.

https://www.economist.com/finance-and-economics/2014/06/05/clouds-ahead

(a)According to the article, German labor market has done well since the second half of 2000s. What are the two main reasons given by the article for this outcome? Please support your conclusions with appropriate quotations from the article. [10]

Answer:

(b)The article points out that Germany has been under-investing between the early 2000s and early 2010s.What evidence does the article present for Germany's under-investment in that period? [5] According to the article, what are the likely consequences of low investment for productivity growth in the German economy? [5]

Answer:

(c)According to the article, what role has the government played in Germany's under-investment? [5] What is the likely impact to this aspect of government policy on Germany's long-run real exchange rate, based on the model(s) of exchange rate determination discussed in Module 6? [5]

Answer:

(d)The article claims that Germany's services sector requires an array of reforms. If the proposed reforms are implemented and those reforms end up raising the productivity of Germany's service sector, what would be the impact on Germany's competitiveness vis--vis its trading partners? Please make sure to explain the mechanism that supports the answer you provided. [10]