Ib Economic Hl Commentary Essay

786 Words Feb 12th, 2008 4 Pages
After escaped from six years of deflation (line 9), the rate of inflation in Japan is 0.25%. However, the inflation rate of Japan is only two to three percent annually. It could be categorized as low compared with the other developed country such as Australia. In addition, Japan faced a problem of sluggish in consumer spending. This is cause by demographic condition in Japan (line 27). To increase an inflation rate, the government has to find a way to increase the level of aggregate demand for local product, It could be done by applying demand-pull inflation . To increase the consumer spending and inflation rate, demand-pull inflation has to be chosen.
If cost-push inflation is applied, it will worsen the problem of sluggishness in
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The production in Japan rise 8.6% over the year. At the same time unemployment rate decline into 4.1%. When production in local area increase, it will followed by raising demand for employment as more employee demanded to make the product. The rate of unemployment in Japan relatively low because many ageing workers still count as a working age.

Japan is depending upon the export strength to support production. The export in this country is high because the level of yen toward other currencies is weak (line 42). Japan could achieve balance of payment surplus because their export is greater than import.

Japanese government tends to let the system of their exchange rate to float freely in the past two years (line 46). Japan interest rate is the lowest in the world with only 0.25% (line 50). The advantage of having low rate of interest is that it will encourage investment. But, the setback is lesser people prefer to save their money in Japan. Japanese government should intervene to stabilize their exchange rate to make it appreciate towards other currencies by increasing the rate of domestic interest rate. If the rate of domestic interest rate is high, it will encourage the Japanese to save their money in Japan. However, Japanese government should be able to ensure both local and foreign investor about the future investment in Japan. Conversely, Government should concern about excessive fluctuating exchange rates problem because it

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