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

Unemployment rate in Japan reaches 9- year low. Discuss.

Extracts from this document...

Introduction

COMMENTARY 3 Title: Unemployment rate in Japan reaches 9- year low Source: Business Asia Page number: 16 Date of publication: 30th May 2007 Date of commentary written on: 21st February 2008 Section of the syllabus: Macroeconomics Word count: 750 Consumer spending in Japan increased since, unemployment rate fell leading to a boost in the income. This increase in income, spurs spending in the economy which provides the employees with an opportunity to endure high interest rates. Furthermore, due to high demand in the labor market, wages increase, since the employers would pay any amount to obtain labor. Aggregate Demand (AD)1 = Consumer Spending(C) + Government Spending(G) + Investments(I) + [Exports (X) - Imports (M)] Price Level Thus with the increase in any of these components, the aggregate demand would also increase, here we see the autonomous expenditure is Investments and along with it even Consumer Spending is increasing; leading to the shift of the AD to the right. ...read more.

Middle

Due to this, the investors withdrew or reduced bonds and investments afraid that the value of their money would reduce and they would receive lesser than they had invested initially. This in turn, enabled the Bank of Japan to utilize their monetary policy of interest rates, an increase in it would act as a corrective measure for the speculated inflation, since, due to high interest rates, consumers would be tempted to save; which would reduce consumer spending. Consumer Spending being a component of Aggregate demand would result in reducing aggregate demand since AD = C + G + I + (X - M). Thus with the decrease in investments and consumer spending, the aggregate demand would also decrease. Subsequently, aggregate demand would shift to the left, reducing prices automatically, eliminating inflation. Price Level AD1 AD2 O Real GDP However, the Phillips Curve3 contradicts how inflation can be eliminated through their low unemployment rates. ...read more.

Conclusion

Moreover, their unemployment rate falling has not shown all its positive effects yet; the high demand for labor is supposed to indirectly increase growth of the country. However, retiring employees are being substituted by younger employees, who are willing to work for less wages, due to which the wage growth has not begun yet. In addition to this, there is a great utilization of part time workers, who are paid normally just hour wise, this type of pay does not encourage any kinds of wage spurs! And lastly, since companies want to keep labor costs low, it would affect the fact that the demand for labor wouldn't be too high, nor would there be a sudden increase in wages, as wages are a critical element of their costs. Therefore, Japan is definitely on the right track, but should be careful about avoiding inflation and remember that slow and the steady wins the race. 1 Glanville, Page no: 245 2 Glanville, Page number: 265 3 Glanville, Page number: 308 ?? ?? ?? ?? ...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. Minimum wage

    Therefore if the price of one good increases the demand for the complement good decreases. If the cinema ticket prices increased, people wouldn't demand popcorn because without the cinema ticket they don't have access to the popcorn. An XED of -1.0 can be calculated through the formula XED = (%

  2. Is it possible to reduce unemployment without increasing inflation

    The classical Keynesian approach takes indeed a quite different approach, in particular in relation to the functioning of the labor market. Keynesians do not see the labor market as just another market which left alone, without interferences, will clear the excess of labor supply by adjustment of real wages. J.

  1. What is the impact of the Notional Interest Tax Deduction system on investments in ...

    Secondly, investment can vary due to interest rates and government taxes. Since, due to the NITDS, government taxes will be milder for companies, they will generally invest as much as possible in the hope of expansion, which will once again increase national income.

  2. Rolls-Royce to axe up to 2,000 workers - discuss.

    Therefore to cut short run costs, the number of jobs have already been reduced and is scheduled for further decrease in 2009. The UK is currently in a recession caused by the financial crisis.

  1. Rising unemployment and inflation commentary. The above article Bah Humbug talks about the ...

    sector sheds jobs because of the harsh spending cuts it has announced. But that didn't happen this autumn and, as a result, overall employment also fell by 33,000 over the same period. That is an ominous sign, given the fact that the OBR expects a marked slackening in GDP growth

  2. Advantages and Disadvantages of High and Low Exchange Rates & of a Fixed and ...

    competitive on world markets and may be seen as an unfair trade advantage. This may lead to economic disputes or to retaliation. An advantage of a floating exchange rate is that it does not have to be kept at a certain level.

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