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Anis Najwa binti Nazari Ainaa Mazelin binti Mustafa Aina Zamirah binti Zamaili Nazira Adlin binti

Md Razi

Applied Economics: A tale of four economics


The article tells us about the rise and fall of four countries who contributed the largest economic result of all time. The country in analysis are USA, Germany, Japan and the United Kingdom. The economic growth for these countries are measured by unemployment rate, balance of payment, economic growth and inflation. These four play the most important factors in determining an economic performance of a country. Germany and Japan showed a successful economic performance with low inflation, low unemployment, high economic growth and a persistent current account surplus. They maintained this for most of the post-war period but started to decline in the 1990s for several reasons. Japan fluctuated from a series of recessions to short periods of positive economic growth. The 4-10 percent range of economic growth per annum plunged down to 1.3 per cent per annum over the period of 1991-2006. Depressed demands caused inflations whereby prices fell and increase for almost 8 years starting 1995. The low economic growth from the inflation affected the unemployment rate and by 2006, it doubled in amount. Germany suffered the same situation as Japan with 1991-2006 being a difficult period. The reunification of West Germany and East Germany played a huge role in their fall. East Germany is a command economy which means that the supply and price are not regulated by the market , but instead the government and they had low outputs per head compared to their western neighbour. The reunification resulted in transfer of resources from West Germany to East Germany but it still had a slow growth of economy. Sharing results with low growth countries ( France and Italy ) , their social economic model was criticised for being inefficient

as it practices high taxes for labour, and the difficulties in firing workers and other constraints scared the firms out of the market. Unemployment rate increased and was 41 per cent higher compared to 1991. Inflation fell by 2 per cent. USA and UK is the total opposite of Japan and Germany. They started out low with USA being lower than Japan and continental Europe and UK having disappointing economic performance with slow growth, persistent inflation and balance of payment problems. US garnered 2.5 per cent per yer between 1960 and 1990 and 3 per cent average in 1992 complimented with subdued inflation and strong economic growth. As for UK, after a deep recession in the early 90s, it got back on its track with 2.9 per cent between 1993 and 2006 compared to their previous 2.3 per cent whilst inflation still falling and unemployment halved. The performance of their current account of the balance of the payments can be interpreted in two ways. First, the unchanged current account deficits of the UK and US will affect the growth these economies as they borrow money to cover the deficits, they will have to repay with interests, which means they have to take out more money than the value borrowed in order to pay back. Japan who has run a persistent surplus will soar in the future. This changes for US and UK if their current account deficits are caused by inflows of investment capitals where foreigners invest their country for which they will benefit in the future. If Japan spends its current account surplus to invest in UK and US businesses, they will have a win-win situation in which we can see that they have to cooperate with each other to ensure better economic growth of the world.

The UK and USA economies barely changed since 1970s and 1980s with an increase growth rate of around half a percent. However, Japan and Germany who were rising up to twice the rate of UK and US fell dramatically. Their growth rates have been half of UK and Usa since 1991. This sudden turn of events has been used to criticise the Anglo-Saxon economic model which associates with free markets and globalisation being superior than social economic model practiced by Germany that associates with more controlled market and protectionism. UK and US did a great job rather than their rivals, Germany and Japan but what worries economists is the fact that they have persistent current account deficits that will surely drag down thie success now if not careful.