Professor: GD15 January 2015Japan Goes From Dynamic to Disheartened1. 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 termssuch as aggregate demand and aggregate supply.GDP represents the market value of all final goods and services produced in a yearwithin a country.If GDP increased, that means there was more to consume. It doesn't notnecessarily mean that consumption (C) increased as well because an increase in the savingscould cause consumption to be flat or even decline. However, most of the time consumptionwould 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 theywill be cheaper in the future. Therefore, periods of deflation often lead to lower consumerspending and lower economic growth. We know when we have tax cut, consumption goes upand it increases aggregate demand, also increase GDP. But when we have tax up,consumption goes down, aggregate demand and GDP decrease. When government spendingincrease, 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 aconsequence of multiple causes rather than a single factor. However, we can see, somefactors may have had a stronger effect than others.
Picture 12. What is the idea of "using cash to pay down debt instead of borrowing andspending" hurting the Japanese economy?