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Commentary 2: Macroeconomics

The article states that japan suffers from less economic growth than expected: “Japan's economy grew less than expected at the end of last year”, due to less spending, consumption and ‘abenomics’, leading to a future recession “Japan will fall into a recession in 2015”.

GDP is a value of all goods and services produced within a country over a given period of time, usually a year. A steady increase of national output or GDP will lead to an economic growth of a country. There are three ways of measuring GDP: income, expenditure and output.The expenditure methodmeasures the value of all spending on goods and services in the economy over a period of time. The spending consists ofconsumption by housholds (C), Investment by businesses (I), by government (G), and by net export, which are exports minus spending on imports(X-M).

The expectations of spending have occurred to be lower than expectations “Gross domestic product rose by 1 … compared with market estimates for a 2.8% expansion”.

As it can be seen from the Graph 1, the AD (spending on domestic goods and services at various possible average price levels per period of time) shifts to the right (from AD1 to AD2), since Japan’s economy was growing (GDP increased, we also can assume thatthe value of real GDP as 100 % for September 2013, so in December 2013 it became 101%), but less than was expected - ADexpected, leading to a slight increase in average price level from P1 to P2.

Market for products in Japan
Average price level in ¥
Graph 1
Real GDP
100 % 101 %
P2
AD1
AD2
P1
ADEstimated
e
e1
SRAS

 

 


The reason for that was suggested as “weaker private consumption and capital spending, as well as lower export figures”. This situation of economic situation of Japan can be seen from the Graph 2. In the business cycle, the short-run fluctuations of real GDP (GDP adjusted for inflation, which a persistent increase in average price level) around its long-term trend, below Japan can be placed as its current situation straight after peak near recession (fall of real GDP for at least two consecutive quarters), so that Japan “will fall into a recession in 2015.”

Graph 2

Time
GDP growth Business cycle
Peak
Slump or through
Recession
Recovery
Contraction
Expansion
Long term GDP trend



 


One of the reasons for that is “the limit of “Abenomics”, which is a set of measures based on fiscal and monetary policies and structural reforms in order to stimulate GDP growth. The government introduced some fiscal policies (set of government policies in order to affect GDP by spending and taxation). Expansionary fiscal policy aims to expand GDP by lowering income taxes to increase disposable income of households and encourage greater consumption(C); lowering corporate taxes, so firms enjoy higher after-tax profits and encourage greater investments (I); increasing government spending (G) to improve public services. As for monetary policy, it is intended to be eased by lowering the interest rate in order to boost GDP growth.Nevertheless, Japan’s GDP has decreaseddue to consumers’ expectations of weaken their power to purchase, in other words consumers reduced their spending, since their confidence has fallen. Also, as it was mentioned in the article: “programme aimed…to spur purchases of Japanese products”, i.e. increase in net exports(X-M), but it has occurred to be limited because of “surge in imports, mostly of fuel, to supply the country with power after its nuclear plants were mothballed”.

In addition,” programme aimed at weakening the value of the Japanese currency”. This is called depreciation – decrease in a value of a currency. The aim was to increase revenue from exports and reduce imports, but as it was stated in the article, imports were not reduced, since after disasters that affected their nuclear plants, Japan needed fuel to supply population with energy.

Therecession will affect different stakeholder groups (groups that are involved in and affected by the market forces) like consumers, since their confidence will fall, as well as spending, since weaker currency means higher prices; businesses, their confidence will decrease as well, leading to less investments, and so injections will be reduced significantly overall. Moreover, recession means unemployment (situation in the economy, when people who are able, willing and actively seeking for a job, but cannot find one) and inflation. Unemployment in this case can be regarded as cyclical unemployment due to changes of a business cycle.

Thus, “Abenomics” was intended to expand the economy of Japan and will maintain in the short run (2014), but lead to a situation with future predictions of recession and economic decline as a long-term effect that, of course, may probably force to the re-election of a current prime-minister Shinzo Abe.

 

Words Count: 744

 

 

 

EVALUATION:

ANALYZE THE ‘ABENOMICS PROGRAMME’, ITS EFFECTS AND LIKELIHOOD OF FURTHER ACTIONS AND OUTCOMES.

EFFECTS ON STAKEHOLDERGROUPS (DOMESTIC PRODUCERS, FOREIGN PRODUCERS, GOVERNMENT, CONSUMERS)

LONG-TERM AND SHORT-TERM EFFECTS

 

 


Date: 2015-01-11; view: 861


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