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2 (a) Explain one reason why a country such as Germany wants to avoid an increase in the national debt relative to GDP (Figure 2) - Edexcel - A-Level Economics A - Question 2 - 2021 - Paper 3
Question 2
2 (a) Explain one reason why a country such as Germany wants to avoid an increase in the national debt relative to GDP (Figure 2). (b) Examine two likely effects of... show full transcript
Worked Solution & Example Answer:2 (a) Explain one reason why a country such as Germany wants to avoid an increase in the national debt relative to GDP (Figure 2) - Edexcel - A-Level Economics A - Question 2 - 2021 - Paper 3
Step 1
Explain one reason why a country such as Germany wants to avoid an increase in the national debt relative to GDP.
Answer
Germany aims to maintain a balanced budget and control national debt to ensure financial stability. Higher debt relative to GDP can lead to increased interest rates as investors demand a higher return for perceived risk. This can crowd out government spending on essential services and future investments, adversely affecting economic growth.
Step 2
Examine two likely effects of the forecast change in the rate of unemployment in Germany on firms in Germany.
Answer
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Increased Labor Costs: With the unemployment rate forecasted to decline, firms may face higher wage demands as job seekers gain more bargaining power, leading to increased labor costs.
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Increased Consumer Spending: A lower unemployment rate typically leads to higher disposable income, resulting in increased consumer spending. This can benefit firms by boosting sales and profitability.
Step 3
Discuss the likely impact of investment in new technology on the profitability of firms in Germany.
Answer
Investment in new technology can enhance productivity and efficiency, which may lead to increased profitability for firms. By utilizing advanced technology, firms can lower production costs and improve product quality, attracting more customers. A cost and revenue diagram can illustrate how increased efficiency shifts the cost curve downwards, leading to higher profits at equilibrium.
Step 4
Evaluate the microeconomic and macroeconomic factors which are likely to determine the rate of economic growth in Germany relative to other developed economies.
Answer
Microeconomic factors include the competitiveness of German industries, availability of skilled labor, and innovation dynamics. Macroeconomic factors consist of government fiscal policies, global economic conditions, and exchange rates. Together, these elements shape Germany's growth prospects and its ability to adapt relative to other developed economies.