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Japans Debts Crisis
Mihir Khubchandani
/29/2011
Dwelling deeper into the costs of rebuilding Japan after its disastrous affects, and
understanding how Japan can help increase demand to stimulate an economy in debt.
Related Syllabus Coverage:
1. Demand Side Policies
2. Economic Growth
3. Inflation
With Reference to Bloomberg BusinessWeek (Magazine)
Article of the week 21st-27th March 2011 Issue
Article Titled: Financing the Reconstruction
Written by Aki Ito, Keiko Ujikane and Mayumi Otsuma
Available Online at http://www.businessweek.com/magazine/content/11_13/b4221020108140.htm
This report will look closely at demand side policies for Japan, which are a form of
government intervention used to alter the aggregate demand and GDP of the
country. This is done via monetary policy, using interest rates set by the national
bank, or using taxes and government spending under the fiscal policy.
Japans demand side policy is solely a fiscal policy, as the current interest rate is
0% and the monetary policy is as such irrelevant, due to the problem of deflation
Japan faced. The interim solution used of increasing supply of money will simply
help pay for immediate rebuilding, but in future will contribute to inflation over
the long term.
An expansionary fiscal policy will have to be used, led by government spending,
as a change in taxes may have adverse effect on the economy. Japan needs
funding to pay for rebuilding and also to furnish the debts and so needs to
increase tax revenue. However, if taxes are increased, firms and households will
find that the spending income (or real profits) will decline. This will mean that the
investments and consumption expenditure will fall, and this will reduce GDP.
could come to a stage of debt crisis, since output has slowed after the
earthquake. Immediate government intervention appears to be the only solution,
to increase GDP.
Total Word Count (Inclusive of diagrams and textboxes): 750 words only.
Bibliography: