These questions are based on the article, "The German economy: Clouds ahead", published by The Economist on June 7, 2014. See Attached.

1) 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.

2) 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?

3) According to the article, what role has the government played in Germany's

under-investment? 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: The Law of One Price and Purchasing Power Parity?

4) 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.