What has happened in a CHOSEN EUROPEAN ECONOMY over the last two years Assignment

What has happened in a CHOSEN EUROPEAN ECONOMY over the last two years - Assignment Example Firstly, by taming expectations, actual inflation can be controlled; and secondly, this will also lead to stability in employment and output. Similarly, purpose of the fiscal policy (whereby the government alters public expenditure and taxation policies) is to boost aggregate demand of the country, which in turn is expected to improve growth rate of the economy (Lawton, 2013). In the wake of the global financial crisis, Germany, like most other developed countries, is following the policy of fiscal tightening. Germany is a member of the programs undertaken by Euro Plus Act and main commitment of this program was to reduce debt of the government. High debts of the government are not supportive for the long run as this increases the risk of default. Polices of the government are being heavily guided by withdrawal of stimulus and measures of consolidation coupled with reduction of social security benefits. Fiscal consolidation measures followed by German government have been effective in bringing down both the structural and actual deficit of the country. The deficit of the government was brought down below the reference figure of 3%. The general finances of government had also shown a surplus in 2012 for the first time, after the crisis. This makes it clear that the country has been successful in achieving the medium-term budgetary goal and structural deficit is within 0.5% of GDP. Bringing down structural deficit is also important for controlling long-term stability of a country; and in case of Germany, it has been observed that in 2012, the structural net borrowing was only 0.31% of GDP, which was well within control of the government. Even in 2013, structural deficit was below the stipulated value of 0.35% (Deutsche Bank, 20 13). On expenditure side of the fiscal policy, main focus of the government in the last two years has been to increase investment in research and developmental programs and education. The rationale behind doing