The Great Deflation (HSC) - Professor GD 15 January 2015 Japan Goes From Dynamic to Disheartened 1 What were the effects on the real GDP in terms of C I

The Great Deflation (HSC) - Professor GD 15 January 2015...

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Professor: GD 15 January 2015 Japan Goes From Dynamic to Disheartened 1. What were the effects on the real GDP in terms of C, I, G and X (GDP equation)? How did each of these 4 factors impact GDP? Do not forget to describe using terms such as aggregate demand and aggregate supply. GDP represents the market value of all final goods and services produced in a year within a country. If GDP increased, that means there was more to consume. It doesn't not necessarily mean that consumption (C) increased as well because an increase in the savings could cause consumption to be flat or even decline. However, most of the time consumption would move in the same direction as GDP. Consumption is the largest component of GDP. When there are falling prices, this often encourages people to delay purchases because they will be cheaper in the future. Therefore, periods of deflation often lead to lower consumer spending and lower economic growth. We know when we have tax cut, consumption goes up and it increases aggregate demand, also increase GDP. But when we have tax up, consumption goes down, aggregate demand and GDP decrease. When government spending increase, then aggregate demand increase. It is same with net exports, when X increase, aggregate demand increase and GDP increase. I believe that Japan’s deflation is a consequence of multiple causes rather than a single factor. However, we can see, some factors may have had a stronger effect than others.
Picture 1 2. What is the idea of "using cash to pay down debt instead of borrowing and spending" hurting the Japanese economy?

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