• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Japan experiencing economic downturn IB coursework

Extracts from this document...

Introduction

Word count ;732 Japan is experiencing an economic down turn. An economic downturn is when the economy worsens and is going towards 2 quarters of negative growth, a recession. Japan has unveiled a stimulus package worth 107 billion $ in order to prevent the 2 quarters of negative growth. Such Keynesian economics is an attempt to increase economic growth and prevent short-term unemployment. Diagram 1 Keyntian Keynes believed that governments had a responsibility to manage the economy and prevent unemployment, he believed that governments should spend money on national projects in order to boost real output. as we can see form the diagram above an increase in government spending would shift aggregate demand from AD to AD1 and increase real output from Y1 to Y2 and closer to the full employment output of Y(f). ...read more.

Middle

Neo-classical diagram 2 Japans reliance on Keyntian policies to fend off the economic downturn would indicate a shift of economic priorities away from inflation and towards unemployment. This trade off was theorised by Phillips. The diagram below shows the Phillips curve which illustrates the negative relationship between inflation and unemployment. As we can see low levels of unemployment are usually associated with high levels of inflation. However Phillips perspective is short run view of this relationship. In the longer term it has been suggested that in fact there is no trade off. As we can see from diagram 4 increases in AD lead to short term increases in output(Y(f) to Y1) with equivalent increases in employment along the short run Philips curve. However as we know the increase in output beyond full employment eventually leads to rise in business costs and therefore SRAS will shift to the left to SRAS1 and full employment level of output. ...read more.

Conclusion

The effect of this can be seen in the diagram below. As a result of the supply side policy LRAS shifts from LRAS to LRAS1. as a result potential real output increases and prices fall from P to P1. The problem with this is that these policies take a long time to come to effect and as Keynes said "were all dead in the long run". With a shrinking economy and continued inflationary pressures Japan's response is complicated by the potential problem of stagflation. This is illustrated below. Here we can see that SRAS shifts from SRAS to SRAS1 causing an increase in prices and a fall in output. This is most likely to have been caused by the higher cost of energy in Japan. If Japan continues with demand management we can see this would cause further inflationary pressure as AD increases to AD1. it is even more essential therefore that demand management is accompanied by supply side policies. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Strategic Business Management - Cadbury

    among Existing Firms - There are many competitors, and some of them are significant in size as in financial strength. Thanks to the high market and industry growth rate, the rivalry is reduced, but is still very intense. In favour of this go the high exit barriers and not enough

  2. Growth and Development Problem Set - IB Economics exam questions and answers.

    A market economy cannot function in the absence of secure property rights, as there is uncertainty and risk associated with undertaking investments relating to the 'property'. It is risky to build a factory, or make improvements on a farm, if these are located on a piece of land whose ownership has not been legally secured.

  1. Economics Extended Essay - To what extent has the market for paintings in South ...

    But since demand was low galleries were forced to reduce their prices so that they could try to increase the quantity demanded. This tempted some more speculators to invest in the paintings and re-enter the market. Thus from the data of the last few months that speculators are re-entering there are slight signs for a recovery in the art market.

  2. Practice coursework

    Thus some small oil companies will be closed down due to the high demand of oil, as they can't compete with the oil monopolies. The oil monopolies will also be affected, as some major companies' oil supply relies a lot on Libya's supply.

  1. Heritage Management

    opting for cost cutting measures and travel agents avoiding most of the practices. It was generally believed that legislation would be necessary to produce long lasting changes. A 1993 survey indicated willingness of almost half of local consumers to pay extra premium for guaranteed clean beach and sand, hence what

  2. Human Research Management - Southwest Airlines

    SWA HRM policy choices are its activities and decisions that crate the nature of organizational and employees relationship. Those policy aspects are: A. Employee influence - SWA Managers and executives follow an open door-policy, actively listening to employee concerns, options and suggestions for reducing costs and improving work efficiency.

  1. Discuss how demand side policies and supply side policies may be used to increase ...

    This way, the govt is creating more skilled workers, and is increasing the availability of the labour force, thus decreasing the rate of unemployment.

  2. 15 Historical Economic Questions on Mercatilism and the Development of European Countries.

    This is a result of the exposure to new regions because the varying regions of the interior presented new demands as they have different needs due to geographical inefficiency. The Portuguese brought in copper ware, cloth, tools, wine and horses.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work