How has Japan fared with it’s economies booms and slumps? This investigation
is based on stage 4 unit 1 of the Business and Economics A-level course, “What
happens in booms and slumps?”. The unit focuses how people and businesses are
affected by booms and slumps, why they continuously appear and the governments
role in helping to control these two events. The investigation will therefore
focus on Japan and the way booms and slumps affect the Japanese businesses and
people. To determine this the investigation will focus on Japanese economic
growth, inflation, unemployment rates, trade and Government economic policies.
It is true that in a boom there are large amounts of trade. High demand, high
GDP, low unemployment and high inflation (more spending). In a slump the
opposite is true. ŸRecession - High Unemployment, low wages, low demand ŸHigh
Inflation - More spending, higher demand, higher prices, higher costs of
production. ŸLow Inflation - Less spending, low demand, low costs of production.
ŸDownward Multiplier Effect - This occurs when there is too much demand. Then
when there is a slump a deficit occurs because of the surplus that might have
occurred in the boom.
It is difficult to begin to analyse the Japanese economy
since the information about it is very mixed. On one hand we have the news that
Japan is coming out of a recession and in the other that Japan is going into
one. The information released by the government assures us that Japan is
improving its economic stability, while the media and world banks tell the
opposite story.The Bank Of Japan is looking to ease its monetary policy (control
of interest rates to control bank lending) and to fight the deflation by
creating inflation. While on the other side we are being told that the
unemployment rate is easing from an unprecedented 5.0% to 4.5%. So which one is
true. It is true that Japanese economy has improved, it has come out of it’s
recession but it still faces several problems that may keep it from expanding,
these are: ŸConsumer demand is still weak - Between the years 1989 and 1998
household savings have decreased from 7.6% to 7.1 per cent.
This means people have started spending more but still in low
quantities. ŸUnemployment in Japan is at around 4.9%. - Although temporary
workers and one day contract workers have increased full time employees have
been laid off more. ŸCorporations continue to restructure themselves. - The
Japanese are adopting a more American industry. The relationship between workers
and employers and the management is changing. This change is also a factor to
the improvement of the economy. So what exactly pulled Japan out of its
recession. One of the major factors is the low interest rate (montary policy)
that encouraged people to save less and spend more thereby creating demand. By
creating demand they initiated the circular flow of income. What this means is
that households had more money which they spent on products and because there
was demand once again the factories started producing, this led to the need for
workers and the workers were paid wages which could then be spent. The other
reason is major Government intervention, through fiscal policy. Although this
large spending by the government to create aggregate demand to keep the economy
alive worked, it has increased the countries national debt which has to be paid
off and not only that but this active implementation of fiscal policy has
created a fiscal deficit. So far the damage created by the fiscal deficit has
been non-existent but because of the increased debt public spending may later
become strained especially if interest rates increase and people stop spending
money once again. Then where will the government get the money from. This fiscal
policy can serve also as a mask over the economy because it is hard to estimate
in how much trouble it really is if artificial demand is created. The government
has spent $1 trillion US on their “stimulus” budget and $500 billion to help
sustain their banking system.
