Economics and Fiscal Policy: An Analysis of Czech Republic and Germany

This document provides an analysis of the economics and fiscal policies of Czech Republic and Germany. It includes a discussion on the PPF, opportunity cost, absolute advantage, and NAFTA. The document also covers topics such as fiscal policy, expansionary and contractionary policies, and the goals of fiscal policies. The impact of the global financial crisis and the US President Trump’s trade war on the trade and economy of Bangladesh is also discussed.

Running head: ECONOMICS
Economics
Name of the student
Name of the university
Author note

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Table of Contents
Task 1.........................................................................................................................................2
Task 2.........................................................................................................................................3
Answer a)...............................................................................................................................3
Answer b)...............................................................................................................................4
Answer c)...............................................................................................................................4
Answer d)...............................................................................................................................6
Task 3.........................................................................................................................................7
Answer 1................................................................................................................................7
Answer 2................................................................................................................................8
Answer 4................................................................................................................................9
Answer 5................................................................................................................................9
Answer 6..............................................................................................................................10
Answer 7..............................................................................................................................11
Reference list............................................................................................................................12

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Task 1
year export import nx exchang
e rate
2012 157958779210.8
3
147999131656.2
4
9959647554.59
19.5775
2013 160969652582.3
2
148900262724.2
4
12069389858.08
19.57058
2014 171545080091.5
3
158318631819.8
2
13226448271.71
20.7575
2015 151424360993.9
5
140216921591.5
4
11207439402.41
24.59875
2016 155347829200.1
8
140732272000.3
8
14615557199.80
24.43992
2017 171403399449.5
9
155843816395.5
0
15559583054.09
23.37633
Czech is mostly known to export machineries, cars, vehicles, telephones and various
equipment’s. In the year 2016, the gross domestic product of Czech Republic was found to be
4195 billion. The total amount of exports had been huge in the year 2015 and 2017. The

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value of the net exports are positive in nature which states that the exports were always
greater than the imports. The exchange rates will be floating freely against one another that
means they will be in constant fluctuation. There will be fluctuation in the exchange rate of
the Czech currency the Czech currency. The fluctuation of the exchange rate takes place
when there will be change in the market inflation and rate of interest. The exchange rate are
known to be floating freely against one another which states that they will be a constant
fluctuation. The rate of the foreign exchange rate is one of the most important means by
which the relative level of the economic health can be determined. The fluctuation in the
exchange rates which will be taking place when the country will be experiencing recession.
The political stability and the performance of the country also known to affect the fluctuation
of the exchange rate. The various protectionist measures which are known to exist in the
international trade are tariffs, quotas and subsidies. These kind of restrictions are imposed on
the imports of the foreign competitors. Government-levied tariffs are the chief protectionist
measures. As the member of European union, the Czech Republic known to participate
particularly in all free trade agreements which are entered by the European Union. The Czech
Republic is also known to maintain a Bilateral Investment Treaty with the United States of
America. The Czech Republic is the member of the customs union that allow duty free
exchange of goods from other barriers of trade. The exchange rates will be floating freely
against one another that means they will be in constant fluctuation. There will be fluctuation
in the exchange rate of the Czech currency the Czech currency. The fluctuation of the
exchange rate takes place when there will be change in the market inflation and rate of
interest.The customs rate is known to be the two column tariff based on the Harmonised
system. This particular country is also the member of European Union and the rules of
European Union need to be followed. The various types of protectionist policies are the
various environmental standards and the administrative obstacles. Export subsidies, voluntary

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export restraints, quotas and tariffs. Since tariffs are known to distort the forces in the market
which may prevent consumers from gaining the benefit of the international trade and
specialization.
Task 2
Answer a)
Fiscal policy are the means through which the government can adjust the spending
level and tax rates for influencing the economy of the nation. Therefore, fiscal policy is the
usage of the government revenue collection for influencing the economy. The changes in the
level and the composition of taxation and the government spending can affect the macro
variables like the aggregate demand along with the level of various economic activity, saving
and investment and income distribution. Therefore, it can be said that the fiscal policy usually
deals with taxation and spending of the government. There are three stances of fiscal policy
which includes neutral fiscal policy, expansionary fiscal policy and the contractionary fiscal
policies. Fiscal policy is based on the theories of British economist John Maynard Keynes.
There are basically two types of fiscal policy. One of expansionary and the other is the
contractionary fiscal policies.
The two main tools of the fiscal policy are the taxes and the spending. The first tool of
the fiscal policy is the taxation which comprises of the income, capital gains from the
investments, sales and property. Taxes are known to provide the income which will be
funding the government. Although there is presence of negative sides of the taxes. The
downside of the taxes is that whatever is taxed has less income for spending on themselves.
The changes in the level and the composition of taxation and the government spending can

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affect the macro variables like the aggregate demand along with the level of various
economic activity, saving and investment and income distribution. For this reason taxes can
be treated as unpopular. The second tool that the government uses in case of fiscal policy is
the government spending. The government spending includes subsidies, transfer payments
that comprises of the welfare programs and the government salaries. The spending will
therefore increase the demand and economic growth.
Answer b)
One of the primary goal of the fiscal policy is to restore and maintain the sustainable
level of the public debt. The three major goals of the fiscal policies are maintain or achieving
the full employment, achieving high rate of economic growth and to stabilize the prices and
wages.
Answer c)
The two types of fiscal polices are the contractionary fiscal policy and the
expansionary fiscal policy.
one of the most widely used fiscal policy is the expansionary fiscal policy which is known to
stimulate the growth in the economy. The purpose of this particular type of the policy is to
boost the growth of the nation to a healthy economic level. The expansionary fiscal policy is
basically needed during the time of the contractionary phase of the business cycle. The
government will be using it while reducing the rate of unemployment, increasing consumer
demand and also for avoiding recession. The tax cuts are known to take pace during the
expansionary phase of the business cycle.
On the other hand the contractionary fiscal policy is the kind of fiscal policy which
involves increasing taxes, decreasing government expenditure for fighting the inflationary
pressures. The contractionary policy will be referred to either a reduction in the spending of

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the government or reduction in the rate of the monetary expansion which is dome by the
central bank. When the contractionary policy will be reducing the level of crowding out in
case of the private markets. It will be creating a stimulating effect by growing the private or
the non-governmental portion of the economy. In case of united states this particular type of
the policy is used for increasing the target federal funds rate which is the interest rate that the
banks will be charging each other for meeting the reserve requirements.
Answer d)
Fiscal policy are known to be either expansionary or contractionary in nature. When
there will be contractionary fiscal policy the curve of the aggregate demand will be shifting to
the left and will contract. The long run aggregate supply will be stable as in the long run
supply will not be changing. The contractionary fiscal policy will be decreasing the level f the
aggregate demand by decreasing the consumption, decreasing investments along with
decreasing the spending of the government. On the other hand, in case of the fiscal policy the
level f the aggregate demand will be expanding from AD1 to AD2. Therefore, the
expansionary fiscal policy is known to increase the level of the aggregate demand by either
increasing the spending of the government or reducing the amount of taxes. The expansionary

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policy can take place with the increase in consumption, increase in investments and with the
increase in the government purchases with rise in the spending by the federal government.
The optimal mix of monetary and fiscal policy contributes to a smooth operation of the
economy and also used for fostering the social economic welfare.
The economy of Czech is known to grow by 3,7 percent when compared with the year
of 2016. In the financial year of 2016, the public finances of the Czech Republic ended in
surplus for the very first time. The shift to surplus outcome was the result of a substantial
improvement in the structural balance. The reform which took place in the year of 2017, the
framework of the fiscal and budgetaryareto known to connect the medium term objective
with the national budgetary methodology for the state funds as well as the state budget.
Task 3
Answer 1
0 2 4 6 8 10 12 14
0
5
10
15
20
25
30
Germany
cloth
Cars
The PPF of Germany shows that when Germany will be producing 24 units of cars
and 12 units of cloth. Therefore, it can be said that when Germany will be producing 24 units

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of cars, it will be producing only 12 units of cloth. The area below the production possibility
curve states inefficient use of resources. On the other hand the area outside the curve of PPF,
is impossible to attain with current resources. Therefore with sufficient use of resources
Germany can produce 24 units of cars and 12 units of cloth.
0 2 4 6 8 10 12
0
2
4
6
8
10
12
14
16
18
20
Bangladesh
cars
Cloth
In case of Bangladesh, it can produce 18 units of cloth and 10 units of cars. Therefore
it can be said that sufficient use of the resources Bangladesh will be producing 18 units of
cars along wit6h 10 units of cars. With the 4 units of cloth, 8 units of cars will be produces.
The area outside the curve states it is impossible to attain with the available resource. On the
other hand, the area under the curve states that it is impossible to achieve the efficiency.

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Answer 2
The opportunity cost refers to that value of what has been given up for choosing
something else. The opportunity cost are also the fundamental cost in economics and are used
for computing cost benefit analysis of the project. The profit or t6he benefit of something
give up for acquiring or achieving something else is associated with the opportunity cost.
Opportunity cost comprise of the explicit cost and the implicit cost. Now in case of Germany,
if it uses all the resources for producing cars, it will not be able to produce any cloths. On the
other hand when Germany will be using all the resources for producing cloths, it will cannot
produce cars. Therefore the opportunity cost of producing only cloth is losing the opportunity
for producing cars.
Answer 4
The term absolute advantage refers to the ability of the country or the company for
producing a good or service at a lower cost per unit than the other country which will be
producing the similar good and services. The country or the organization will be having
absolute advantage which can produce a product or services using the efficient process.
Therefore, it can be said that Germany can have absolute advantage in producing cars as it
will be producing more number of cars compared to Bangladesh. On the other hand,
Bangladesh will be having absolute advantage in the production of cloths since it is known to
produce more cloths when compared to Germany.
Answer 5
Country Cars Cloth
Germany 24 12
Bangladesh 10 18

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World 34 30
Before specialization, the total world production of cars is 34 and the total production
of cloths were 30. When there will be absence of any kind of specialization the total
production of cars in the world will be 24 and the total production of cloth will be 30.
After the specialization Germany will be specializing in cars and Bangladesh will be
specializing in the production of cloth.
Answer 6
NAFTA is the North American free trade agreement that has been signed by Canada,
Mexico and the United States which is also known to create a trilateral trade bloc in North
America. Free trade agreement also works in the favour of the member countries. The other
exporters are naturally concerned with the trade being displaced. There is a huge difference in
the types of goods produced by the NAFTA and the South East Asia. The goods that are
produced by the South East Asia is known to be far different from the goods exported by
NAFTA. The textiles and the clothing sector are the principle sector for concern. The US
President Trump’s trade war will be threatening to destabilise the global trade and order. The
global financial crisis will be having he consequences on the trade and economy of
Bangladesh. Trans-Pacific Partnership (TPP) deal have an impact on the major trade
competitor of Bangladesh. It can have a competitive advantage in the American market. The
impact of the war was felt in the steel industry in Bangladesh. For this reason, the price of
the steel had known to rise in the domestic market which will be threatening the public
infrastructure projects. The import tariff provided by the United States of America. The trade
protectionism is termed as the growth the up of nations which work as the trade bloc which
will be known to create trade barriers with the goal of protecting its economy which takes

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place from international trading. The trade protectionism is used to protect the nation’s
economic interest which comprise of the key industries, employment and commodities of the
workers. Free trade will be encouraging economic growth and creation of wealth within the
nation’s border. Trade protectionism includes tariffs, quotas, subsidies and the exchange rate
controls. Therefore, the trade protectionism would lead to rise in the cost of steel production
in Bangladesh. For this reason, the clothes and shoes of the Bangladesh and Vietnam are
subjected to high rate of taxes from the United States.
Answer 7
The developed countries are known to impose trade protectionism rights on the least
developed countries. The short term impact on the tariff increases on the developing countries
is known to be minimal. When the United States will be raising tariffs on the aluminium and
steel imports, this will be affecting the developing countries like Bangladesh. Although, the
medium and long term impacts of the tariffs of the United States which will affect the
developing countries on a large scale. The trade protectionism known to create a trade bloc
which will also create trade barriers with the goal of protecting the economy with the
international trading. The USA china trade war keeps on increasing and Trump will be
imposing tariff on the Chinese products. The United States International Trade commission
found that Bangladesh, Vietnam , Pakistan and other such nations are known to face the
highest import duties as the trade in clothing and footwear. Bangladesh is known to export
large volumes of clothes and shoes to the developed countries like the United States and the
developed countries impose huge amount of taxes. Nearly most of the imports from
Bangladesh were k therefore, factories known to subject to the United States duty. In the
year 2017, the exports of Bangladesh to the United States were more than $5 billion where
most of them were clothes, shoes and other related items. Therefore, factories in Bangladesh
are known to be under huge pressure for keeping the price low.

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