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

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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.

An economic model of the flow of money in the economy becomes significant when such a situation is being analyzed. A simplified version of the flow of money is shown below:

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From the above mentioned situation we can tell that as households start to spend more, an effect is experienced on all the major aspects of an economy. Other than the flow of money becoming faster, as a result of consumers spending in higher amounts, the manufacturers and firms start to earn higher profits. This leads to expansion of businesses, venturing for operations into newer areas as mentioned about electronics manufacturers in the article. Also firms which are already enjoying economies of scale, will try and channelize more money into acquisitions and mergers, which will create more stable firms (in ...

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