Lexy Müller
Econ 230
Dr. Choi
2 October 2022
Introduction
Mercedes-Benz is a well-known company. Mercedes cars are driven all around the world. Most of the profit, however, comes from Germany itself, their home country, as well as many other European countries and the United States, one of their key trading partners. The company's growth is impacted by the economic condition of all those countries. There are many things that influence the economy and companies. Often times policies affect not only one country itself, but many other countries as well. The impact of the Federal Reserve Banks policies on Mercedes Benz is almost as high as the German Bundesbank’s.
Impact of Federal Reserve System
The Federal Reserve System, or “the Fed,” is the United States’ central banking system. The Federal reserve’s goal is to “promote maximum employment, stable prices, and moderate long-term interest rates” (“Monetary Policy”, n.d.). Right now most economies around the world struggle with inflation and unemployment. Therefore, the Federal Reserve tries to decrease inflation and increase employment. Federal reserve policy impacts the market in general through its impact on the stock market. When interest rates are cut by the Fed, the stock market goes up. On the other hand, when interest rates increase, the stock market generally goes down. In January 2022 the federal reserve interest rate was 0.08% with an inflation rate of 7.5%. These rates have increased significantly since with the federal reserve interest rate being 1.68% and the inflation rate being 8.5% in July of 2022 (Statista, 2022).
Impact of German Bundesbank
“The German Bundesbank was established in 1957 as the world’s first fully independent central bank with a simple but all-encompassing mandate: to keep the price of the German Deutsche mark stable by limiting inflation.” (Alessi, para.1) This is very similar to the goals of the Fed. The impact of the German Bundesbank is the same the Fed has on the American economy. Right now the German economy is struggling: “Six leading German research institutes conclude that an embargo could lead to a GDP loss for the country of around 1% this year and 5% in 2023. The Bundesbank estimates a hit of 5% in 2022.” (The Economist, para.2) The struggle with inflation among the German as well as US economies has an effect on many companies, since gas prices keep increasing, transport, production and inventory rates are also rising.
Germany’s and Europe’s Fiscal Policies’ effects on Economic Growth
Since most European countries work close together their goal is to keep exchange rates similar to make trade easier. “European nations took steps to create a new monetary order in Europe and to harmonize their exchange rates. Most significantly, they established the European Monetary System in 1979, which employed an Exchange Rate Mechanism to stabilize exchange rates between European member countries, including Germany.” (Alessi, para.10) This makes it easier and cheaper for Mercedes- Benz to sell cars in other European countries, which means that those policies have a positive effect.
Effects of US Fiscal Policies on Mercedes- Benz
Fiscal policy is defined as “Federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations.” (Cowen & Tabarrok, 2020, chapter 37) Fiscal policies affect economic conditions such as aggregate demand for goods and services, inflation, employment, and economic growth. The adjustment of fiscal policies in the US impacts the German economy as well. For example, when taxes in the US increase, then the taxes for trading and selling products to the US also increase.
Conclusion
As we know Mercedes- Benz as well as many other companies are affected by changing policies in the home country and the key markets. However, since those policies are currently not only changing in Germany, trading with the US does not have a much bigger impact than trading with other European countries. Countries are consistently changing fiscal policies to better their respective economies.
References Alessi, Christopher. (6 February 2013). Germany’s Central Bank And The Eurozone. https://www.cfr.org/backgrounder/germanys-central-bank-and-eurozone.
CNBC. (30 September 2022). Mercedes Benz Group AG.https://www.cnbc.com/quotes/MBG-DE?tab=news.
Cowen, T., & Tabarrok, A. (2020). Loose-leaf Version for Modern Principles of Economics (Fifth ed.). Worth Publishers.
federalreserveeducation. (n.d.). Monetary policy basics. Federalreserveeducation.Org. Retrieved July 14, 2022, https://www.federalreserveeducation.org/about-the-fed/structure-and-functions/monetary-policy/.
Inflation rate and Federal Reserve interest rate monthly in the United States from January 2018 to July 2022 [Graph]. In Statista. Retrieved October 2, 2022, from https://www-statista-com.ezproxy.regent.edu/statistics/1312060/us-inflation-rate-federal-reserve-interest-rate-monthly/.
The Economist. (30 April 2022). How Would an Energy Embargo Affect Germanys Economy? https://www.economist.com/finance-and-economics/2022/04/30/how-would-an-energy-embargo-affect-germanys-economy.