11Page Economics Case Study Japan moves back into deflation Given below is an extract from a news article, which appeared on BBC, about the health of Japan’s economy. Japan's economy has fallen back into deflation for the first time in more than a year, new data for March shows. Gloomy figures also showed that the country's unemployment rate moved to a four-year high of 4.8% in the month. Meanwhile the number of available jobs in the world's second biggest economy has fallen to a seven-year low. On Thursday the Bank of Japan said GDP would shrink by 3.1% in the year to March 2010, compared to an earlier forecast of 2%, but it has argued that a recovery will begin in 2010. But in its latest update earlier this week it also warned that consumer prices will fall by 1.5%, pushing Japan into deflation. 1. Explain the following terms appearing the in the extract: a. Unemployment [2] b. GDP [2] c. Deflation (2) d. Consumer prices(2] 2. How do you calculate a country’s ‘unemployment rate’? [2] 3. What is meant by the term ‘GDP would shrink by 3.1%’? [3] 4. With reference to the information given in the extract, comment on the health of Japan’s economy. [5] [18 marks} ©dineshbakshi.com. ‘This worksheet is downloaded from wwrw.dineshbakshi.com. Home to IGCSE, GCSE, AS and A Level Business Studies, Economics, Accounting & ICT revision2IPage The number of unemployed has jumped by 670,000 over the past 12 months, and now stands at their highest level since August 2004. With more people out of work and falling household incomes, that could push down consumer prices further as companies try to attract people into buying their goods by cutting prices. The core consumer price index, which excludes volatile prices of fresh fruit, vegetables and seafood but not oil prices, fell 0.1% in March from a year earlier. The Bank of Japan has forecast two years of deflation Analyst Takeshi Minami, chief economist of Norinchukin Research Institute said the price drops will accelerate. "Deflation will be damaging to the economy. Companies will have difficulty increasing profits, and their effective burden from borrowing money will increase," he said. "With job conditions worsening, consumption will remain weak. As such, downward pressure from weak demand on consumer prices will continue as a trend. Some sort of economic policy will be needed to stimulate consumption. The Bank of Japan may also have to really look into doing something to stop price deflation.” 1. What is meant by the term ‘consumption’? [2] 2. Analyse the effects of ‘weak consumption’ on the economy. [4] 3. Explain what motives people have for saving rather than spending. [4] 4. “The Bank of Japan may also have to really look into doing something to stop price deflation." In your view, what actions should Bank of Japan taken in order to stop price deflation? [4] 5. How might a reduction in interest rates affect the way that people choose to save or spend? [4] [18 marks] ©dineshbakshi.com. ‘This worksheet is downloaded from wwrw.dineshbakshi.com. Home to IGCSE, GCSE, AS and A Level Business Studies, Economics, Accounting & ICT revision