Cambridge International as and a level Economics Ebook

SELF-ASSESSMENT TASK 
10.5
In 2014 the German government’s economic policies 
came in for criticism from the president of its own 
central bank, Jens Weidmann. He claimed that the 
plan to phase in a minimum wage of €8.50 an hour 
by January 2017 and a cut in the retirement age of 
some workers would reduce the effi
ciency of the 
German labour market.
He also said that the government’s willingness 
to stimulate consumption to reduce the country’s 
current account surplus would penalise exporters 
just because they are more effi
cient than their rivals 
in producing relatively low-priced but high-quality 
products. In 2013 Germany had a current account 
surplus of €210 billion, which was 7.5% of GDP and a 
higher percentage than China’s surplus.
1
Discuss whether introducing a minimum wage 
would reduce labour market effi
ciency.
2
Would increasing consumption necessarily 
reduce a current account surplus?
3 a
Why may a government seek to reduce a 
current account surplus?
 
b
Explain how one policy measure may reduce 
a current account surplus and give one reason 
why such a measure may not be eff ective.
Tax Revenue
Tax Rate %
40 50
100
0
Figure 10.4 
The Laff er curve
271
Chapter 10: Government macro intervention 

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Exam-style questions
1
 
a
Explain how the impact of the Keynesian 
multiplier process will change if a free-market 
closed economy becomes a mixed economy with 
foreign trade. 
[12]
b
Analyse how a change in the equilibrium level 
of income resulting from the multiplier process 
might lead to unemployment or inflation.