Question

“Japan’s GDP contracted by 0.9 per cent in the first quarter of 2020”. Discuss if the above statement means that the welfare of the people of Japan has decreased by the same rate. Justify your reasons.1000words

Answer 1

GDP contraction is nothing but plunge in economic activity and trade and thus it doesn't necessarily imply that public welfare too declijed by same amount as it is mpre depending on microeconomic variables like wages amd Inflation.

Since oil prices go negative, the US wTi crude oil prices remain unattractive as storage costs get higher and supply remains higher because oil plants cannot be closed and economy receives almost zero prices on selling in short run and economic growth deepdives as unemployment toonrises because of low revenues and low forex reserves.

Coronavirus has had huge impact on economic growth due to lockdown and shutdowns and social welfare losses.

The economic growth remains subdued as Aggregate demand and consumption both fall simultaneously also leading to fall in prices and inflation.

Investment is pumped out due to falling interest rate regime and lower economic outlook of companies.

Government spending is ramped up due to an expansionary fiscal policy by reducing taxes and spending. Also net exports go negative as imports surge due to supply shocks.

Negative growth in GDP causes high unemployment and lower inflation based on Philips curve movement.

Thus in short run, aggregate supply is high but aggregate demand is low and real GDP falls. However in long run the economy stabilises.

Japan has been great in fiscal stimulus with central bank announcing unlimited bonds buying programmes with rate cuts, CRR and SLR and liquidity coverage ratio cuts. Triggering automotic stabilizers and combined above policy will help alleviates financial distress and grow economic growth throufh higher consumption and disposable incomes.

The supplyvof credit availability rises causing its demand to go down considerably.

Sijce the interest rates are cut, the banks shall transmit easier loans availability at lower rates and thus loan markets will grow enormously.

To avert this crisis, Jaoan must impose lockdown and gradually open economy using partial lockdown only after 3 months of complete lockdown. Major boost towards creating vaccination and healthcare for curing patients is required.

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