Economic situationin Europe in Europe

The German EconomyThe German Economy

This is family Müller

Erasmus +

Consumption

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At breakfast

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Lisa, take the newspaper fromthe letterbox, please!

OK, Mum

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What is consumption? I‘ve heard it in school.

Daaad, in thenewspaper I read thatthe consumption of theGerman populationincreased a lot.

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Hey babe, howshould we explainthe wordconsumption tothe children?

Hmmm, let‘s takean example!

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That‘s a good idea! So, Lisa and Leon, pleaselisten to me. Take forexample our family. Tohave a good life, weneed things every day. These are both material These are both material and immaterial goods.

Consumption means to buygoods. So consumptionmeans buying and using ofmeans buying and using ofgoods as a consumer.

I don‘t understand thedifference between material and immaterial goods!

I will explain it to you. Material goods are thegoods which you can touch, for example a car and immaterial goods are the goodswhich you cannot touch, for example a licence. licence.

Now I will go on! To measure the cosumption ofour country, we have a so called consumerconfidence index. This is a figure, which tells us, how much the German population buys at themoment. The CCI is measured by the GfK. With

Wow, I understand itreally well, although it ismoment. The CCI is measured by the GfK. With

their figures they determine the CCI. although it isverycomplicated. But what is thesituation ofGermany like atthe moment?

Yes yes, I‘m not ready yet. The situationin Germany and in Ostwürttemberg at thein Germany and in Ostwürttemberg at themoment, is very good and risesconstantly out of the black and into theblue. The people in Germany buy manygoods, so they do a lot of consumptionbecause they spend a lot of money.

The reasons for the good times are, that the oiland fuel prices are very low. Moreover, the incomehas been very high since this year. For all thesereasons the people buy big things. In general, thereasons the people buy big things. In general, thelast time consumption was so high in Germany was13 years ago. The last peak period of the CCI was in 2006. Then the people bought a lot of thingsbecause they looked towards the rising of the valueadded tax and used their last chance to buy cheapproducts.

Now I‘ll come to the last point. There isone problem with the CCI. The CCI onlyconsiders the private consumption. Itconsiders the private consumption. Itdoesn´t consider the industrialconsumption, which means the investionof companies. So it isn´t a figure aboutthe whole economy. But the figure cannearly be right.

Ahh, now I understand it all reallywell and I gained a

Wow, thank you Mum andDad you explained it all really well. And now let‘s goshopping ,I want to do consumption! ☺

gained a little moreknowledge.

consumption! ☺

Inflation

"the evil ghost"

Mom, everything isgetting more

Okay, that‘s fine. Let‘s adapt it to

the currentinflation rate.

getting moreexpensive. I need

more pocketmoney!

Yes,sure! So you get 2€ per month and you can buy 22

bonbons. The inflation rate is0,9% and so now you need2,18€ to buy 22 bonbons.

Okay☺ canwe calculateit, please?

hSo I only get

Yes, becausethe inflation

rate is so low.

hSo I only get18ct more??:O

Let meexplain it to

you…

What is inflation?

Demandinflation

Cost-push inflation

Infaltion causedby moneysupplysupply

- demandincreases- Production can´t

keep up- Price increases

- Scarcity of rawmaterials

- Amount ofmoney in themoney flowincreases whilethe production ofgoods doesn´tincrease

Great! ☺ Now youlearned something

but you have toremember that theprices increase but

only a little bit…

Thank you Dad!Now I get it! ☺

Deflation

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Deflation

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Mom, please tell me, what is deflation?

Deflation is a prolonged decline of the price level of goods and services.level of goods and services.

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And when is thishappening? This happens when aggregate demand is

less than the aggregate supply.less than the aggregate supply.

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What does that mean? Demand for goodsdrops

Prices decrease

Look at this!

Demand forcreditsdecreases

Demand and production declines

Interest rate drops

Loss of jobs, lower wages. Companies go bankrupt

Further decrease of demand becausepeople wait for additional price reduction

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And how do you measure that?

This is measured by the consumer price index, if it´s negative, you can

see the amount of deflation.

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Has anything like this ever happenedin Germany?

Yes, there has. We had a deflation from 1929-1933 during the Great

Depression. That's why we suffered from mass unemployment, wages from mass unemployment, wages

were reduced and domestic demand declined and the crisis worsened.

I´m sure, that you know the "Black Friday“…this was the day when the New York stock exchange crashed.

This was also a deflation..

Which consequences are there for thestate? For the state, it is a For the state, it is a

stagnant to declining growth.

Are there advantagesand disadvantages?

Yes, it has advantages: lower prices for consumer goods and therefore we can

afford more. Then you can buy stuff from your own pocket money because it is

cheaper.and disadvantages? cheaper.

But it also has an impact on the labor market. Firms have fewer sales, competition

is getting tougher, so they cut wages of workers or even dismissed that, in order to participate further in the competition. Many companies also conclude, there are more

unemployed people and VAT may be raised.

Thanks Mom and Dad, now weknow everything about deflation ☺

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Now family Müllerwill explain unemployment to you!

Hello!

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Unemployed people are people who are not able to find a job.

2

What is unemployment?

1

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There is a difference between voluntaryunemployment, people who do not want to

work, and unvoluntary unemployment, peoplewho can not get a job.

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There is an unemployment rate. It is calculatedwith the registered unemployed people times

100 divided through employees.

2

And how can you find out howmany people are without a job?

1

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No, because not everyone who is unemployedis registered. Also the numbers are not updatedquickly and some people work without paying

taxes, so they are clandestine workers.

2

But is this number alwaysaccurate?

1

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Yes, of course. There are many problems. First, the state earns less money and has to increase

the taxes.

2

Isn‘t it bad for the governmentand the citizens that many

people do not work?

1

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Economical damage occurs, too. People do not work, so their workforce is not used. That iscalled opportunity costs . The economical

reputation of a country is also damaged.

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That is another problem. Unemployed peopleare not able to buy very much anymore,

because the only money they get is social help. That means the buying power decreases .

2

But how do they buy theirsweets then?

1

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Well, one main problem of our German jobmarket is that there is an extremely high long-time unemployment rate because sometimes

people refuse to work.

2

What are the problems thatcause people to have no jobs?

1

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Also there is a lack of highly qualified andeducated workers for the jobs that are needed

and available. This happens because manypeople who are looking for jobs don‘t have thenecessary degree or job training. That is called

skilled worker shortage .

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There are many solution approaches but it ishard to defeat unemployment. For example, we

need more work-orientated schools andtrainings.

2

Aren‘t there any solutions forthat problem?

1

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In addition, the state should give moreincentives and control whether unemployedpeople constantly search for a job. Part-time

jobs to re-enter the labour market are important, too.

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There has been a positive development sincethe financial crisis. While Germany has an

unemployment rate of about 6 % in general, weonly have 4 % in our region.

2

How is the situation here in Germany?

1

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That is great, Dad. Thank you! Now I know, that we‘re very fine

in our region!

Human Development IndexHuman Development Index

Hello! We´re family Müller! And wewill explain the HDI (human development index) to you today!

,

The HDI shows how much wealth a country has.The HDI has also theGDP per person in consideration,aswell as the life expectancy,thewell as the life expectancy,theduration of education and thepurchasing power.

Purchasing power: The quantity of goods that can be purchased with a unit of money

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The grading is from 0-1 (1 is the best grade)

Top 3 (2014) 1. Norway (0,944)2. Australia (0,933)2. Australia (0,933)3. Switzerland (0,917)

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So Leon , they take themost important factorsof a community i.e. theeducation, health & income then theycalculate it and thenyou get a numberbetween 0 & 1 2 Dad how do you calculatebetween 0 & 1 2 Dad how do you calculate

the HDI? 1

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Well we did have somebad times. But wemanaged to make ourway up,nowadays there isless unemployment, wehave a high wealth and

Oh Lisa, Germany is currently on the6th position 2

Mommy, what isthe actualposition of ourcountry? 1

But daaad, how didwe get to this position3

have a high wealth andgreat educationpossibilities 4

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And now kids what do you knowabout the population in our regionOstwürttemberg?

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So I know that in our areawe have 53 cities withabout 450.000 inhabitants

I know that about 13,75 % of the population in ourcity (Schwäbisch Gmünd) are foreigners.

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• almost everyone who lives herehas a roof over their heads

• because of good workingconditions through companies like: Weleda, Carl Zeiss, Triumph, Bosch & Voith.Bosch & Voith.

• we feel very safe here because thecrimie rate is very low

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Wow! I´m very impressed of yourknowledge about our regionOstwürttemberg?

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So now you know, whatthe HDI is and that wecan do everythingbesides speakingproper German haha

Sources:• http://www.ostwuerttemberg.org/• https://www.geoportal-raumordnung-bw.de/projekttraeger/traeger_regionalplanung/ostwuerttemberg• http://www.ostwuerttemberg.de/de/wirtschaftsstandort/wirtschaft-in-zahlen.asp• http://www.vgrdl.de/VGRdL/tbls/tab.asp?rev=RV2014&tbl=tab002&lang=de-DE• http://www.ostwuerttemberg.info/• http://www.ostwuerttemberg.info/• http://www.bpb.de/themen/26g2cn,0,0,human_development_index• http://de.statista.com/statistik/daten/studie/160142/umfrage/arbeitslosenquote-in-den-eu-laendern/• http://de.statista.com/statistik/daten/studie/74795/umfrage/jugendarbeitslosigkeit-in-europa/

• Retrieved 30 April 2015