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"Corporate Japan Says Consumers Will Drive Economic Recovery," - discuss

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Introduction

The article which I have chosen "Corporate Japan Says Consumers Will Drive Economic Recovery," manifests an improvement in consumer spending levels in Japan. In my analysis, I will make an attempt to identify the causes for a boost in consumer confidence levels, and how it affects the national income of Japan, thus revealing an overall effect on the economy. Corporations in Japan have started to breathe easier due to a higher demand for their products by Japanese consumers. In this view, economists and corporate executives are reckoning that this is an indication of economic recovery, also doubling their forecasts to 3.5%. Bigger pay bonuses and improved capital spending is spurring demand for air conditioners, beer, flat panel televisions sets, and many other consumer electronics. Capital spending is the non-residential fixed investment in the Gross National Product (GNP); consists of business outlays on fixed assets like office buildings, as well as purchase of long lived items as trucks, office and farm equipment. Capital spending is one of the major components of economics growth, the other being consumer spending. ...read more.

Middle

Also this higher purchasing power and a greater amount of money in the hands of the citizens will lead to the greater flux of money into such institutions such as banks and investment firms. Consequently government income which is derived from taxes will rise, due to more citizens coming into the tax payment eligibility bracket. More money will be spent in the global sector, as quantity demanded of imported goods and services rises, and exports by expanding firms also steps up. Aggregate Demand is total planned or desired spending in the economy during a given period. It is determined by the aggregate price level and influenced by domestic investment, net exports, government spending, the consumption function, and money supply. AD = C + I + G + (X-M) As is delineated in the article, there is an overall increase in consumer expenditure. Here we see that such a situation will increase Aggregate Demand. We have discussed above how an increase in consumer expenditure is leading to an increase in Capital Spending (Investment), and Net Exports. ...read more.

Conclusion

A graphical representation of such a situation is shown below: The graph reiterates above, that the Aggregate Demand of the Japanese economic activity is bound to grow with a spur in consumer expenditure. As this leads to an expansion in Aggregate Demand, the Japanese economy will move closer to its potential GDP mark. Even as price levels rise, it becomes better for the economy because the recessionary gap which was created previously because of consumers tending to save more than spend will be covered. Producers will benefit from such an increase, because they will incur higher sales. The government will view the AD moving to AD1, closer to the potential GDP mark as a good time to beef up public spending to further aggrandize the good economic activity. The extra spending by Japanese consumers is a resuscitation act for the Japanese economy. As explained above, it will lead to an overall growth in the form of increasing GDP. This is an indicator of improving standards of living, and a healthy purchasing power for the consumers. Producers will benefit due to higher sales, and even the government will show more confidence in its public spending ventures. ...read more.

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