Fundamental

Economics 1
Final assignment
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Contents
Question 1:............................................................................................................................................1
Question 2: Version 2 – 2B – Fiscal Policy............................................................................................3
Question 3:............................................................................................................................................5
Reference..............................................................................................................................................6
Question 1: Macroeconomic snapshot
a)

Figure 1: GDP and GDP growth rate of Japan for 2007-2022F.

(The world bank n.d; Statista n.d)

7000.00 15.00%

6000.00 10.00%

5000.00 5.00%

4000.00 0.00%
Billion USD

%
3000.00 -5.00%

2000.00 -10.00%

1000.00 -15.00%

0.00 -20.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20212022F

GDP GDP growth rate

Figure 2: Inflation of Japan for 2007-2022F.

(The world bank n.d; Statista n.d)

2.5

1.5

0.5
%

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022F
-0.5

-1

-1.5

-2

Inflation rate Linear (Inflation rate)

1
Figure 3: Unemployment rate of Japan for 2007-2022F.

(The world bank n.d; Trading view n.d)

4
%

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022F
Axis Title

Unemployment rate Linear (Unemployment rate)

b)

From figure 1, we can see that the period 2008 - 2015 was the most difficult period for Japan when
GDP growth was getting lower and lower and bottomed out in 2013, while total GDP income reached
a low level. highest in 2015.

In addition, when looking at figure 2, we can see that 2007 had a very low inflation rate and was
close to 0%, and then suddenly the inflation rate increased to nearly 1.5% in 2008 before the entire
Japanese market The country fell into a deflationary period from 2009 at -1.33% to 2011 at nearly -
0.5%. Inflation in Japan reached a historic peak of 2.5% in 2014, just one year after the lowest GDP
growth in history was recorded in 2013 - more than -15%. Regarding the fact, according to Takagi
and Kawai (2009), from mid-2008, the global financial crisis began to have an extremely negative
impact on the Japanese economy in period 2008-2012. Moreover, a series of political conflicts
leading to economic disruptions between Japan and China, Korea, and its ally, the United States in
2010-2012, has made Japan's economic situation even worse and worse (Smil 2012).

In figure 3 we can see that the unemployment rate of the Japanese economy fell most severely
between 2008 and 2011 when the unemployment rate peaked in 2009 and 2010.

After the sequence of events taking place in all 3 charts, we can conclude that starting in 2008, when
the economic growth rate of Japan started to decline, as evidenced by the GDP growth rate started
to decrease, the unemployment rate since 2008 also started to increase, causing the Japanese
government to intervene in the economy to help regulate market liquidity and thus lead to a sudden
change in the inflation rate. in 2008 compared to 2007.

However, unlike the Japanese government's expectations, Japan's economy fell into deflation
between 2009 and 2012, coinciding with a time when GDP growth continued to decline and gross
domestic product (GDP) also markedly decreased.

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From the analysis of the movements of GDP growth rate, inflation rate, and unemployment rate in
figure 1 2 3, we can conclude that the most difficult time for Japan is the period from 2008 to 2015.

Question 2: Version 2 – 2B – Fiscal Policy

2.1
Figure 4: The shift of money supply and demand in the market as the Japanese government expands
its spending policies and reduces taxes.

Figure 5: Tax revenue of Japan for 2007-2020

3
 (OCECD n.d)

200,000

180,000

160,000

140,000
100 Billion USD

120,000

100,000

80,000

60,000

40,000

20,000

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Figure 6: Government spending to GDP of Japan for 2007-2019.

(Trading View n.d)

41

40

39

38

37
%

36

35

34
33

32

31
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Figure 7: Japan Government Budget to GDP for 2007-2020

4
 (Trading View n.d)

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

-2
-2.6
-3.3 -3.1
-4 -3.6 -3.9
-4.5 -4.7
-6 -5.7
%

-8 -7.2
-7.6
-8.1 -8.3
-8.7
-10

-12
-12.6
-14

Japan Government Budget to GDP

Figure 8: Central government debt of Japan on total GDP for 2007-2016.

(The world bank n.d)

250

200

150
%

100

50

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

During 2009-2013, the Japanese government has participated in regulating the economy very clearly
by fiscal tools is to reduce taxes and increase public spending. According to Ryuhei (2009), in the
fiscal year 2008, the government approved an immediate ¥1.8 trillion increase to invest in
government spending on key projects and approved an additional ¥ 4.9 trillion yen increase in the
budget. Compare that to 2009 the initial budget for the fiscal year increased to ¥ 5.2 trillion with
additional spending approval of nearly 13 trillion and this spending expansion program lasted until
2013 before starting to decrease in 2014. During the same period, the Japanese government has

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moved to reduce corporate tax to the maximum extent to keep the corporate bankruptcy rate at a
minimum to reduce the unemployment rate, the total of Japan has decreased by 35% income tax at
its peak (Yamaguchi, 2015). In just a short period of 2007-2009, direct and indirect tax cuts have
reached more than $200 billion and public spending has tripled in the same period. As a result, the
Japanese government's public debt during this period increased by more than 30% to GDP from
130% to 160%.

The result of high public spending and large tax cuts in this short period of time was inflation that
peaked in 2014 (figure 2) but also pulled Japan out of a recession as GDP growth rate slowed. growth
returned in 2013 for the first time after 4 years of decline from 2008-2012.

In addition, the unemployment rate has also improved markedly when since 2010, the
unemployment rate has gradually decreased after peaking in 2009-2010, thanks to the positivity in
public spending and cuts. tax of the Japanese government, helping many businesses to survive and
create jobs for people as well as people have more money due to tax exemptions and reductions.

In figure 4, we can see the correlation of increasing government spending and cutting taxes on the
supply and demand of people's goods that is when increasing government spending and cutting
taxes, supply money will move from S1 to S2 and the demand for goods will also shift from D1 to D2
because at this time people have more money and will have a greater need to spend.

Therefore, the initial equilibrium will fall from E to C, indicating a decrease in inflation and a
decrease in commodity prices, but will rise again from C to B when the money supply has had a
profound effect on demand and causes D1 to pass. D2 helps commodity prices increase back to the
old level, but at the same time, Q2 will increase. Q3 proves that the economy's productive goods
source has been promoted to create more.

The impact of the Japanese government's 2008-2014 fiscal expansionary policy is evident as the
unemployment rate has steadily declined since peaking in 2009 and 2010 (figure 3), as well as The
deflationary period quickly ended and inflation reached historic levels in 2014 (figure 2). The sharp
decrease in the unemployment rate and the sharp increase in the inflation rate in Japan during this
period was due to the intervention of the state through the tax cuts from 2007-2010 and bottomed
out in 2009, which means the tax revenue of Japan's government suffered the most in 2009. At the
same time, government spending increased dramatically between 2007 and 2014 (figure 6), causing
Japan's public spending deficit to quadruple during the period. 2007-2011 (figure 7), the deficit
situation only improved when the Japanese government raised taxes again in 2011 to the level of
2007 (figure 5).

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2.2
Figure 9: A state of deflation when public spending and tax cuts are not effective in stimulating
consumer demand

Figure 9 shows the deflationary situation Japan experienced in 2009-2013 (figure 2), when the
government's aggressive budget spending increased enormously and at the same time tax cuts were
also very high (figure 5&6) but cannot stimulate domestic consumption, the reason is that at this
time people in Japan are very conservative and they only worry about saving and stop spending
(Salsberg 2010).

So even though there is a lot of money in the market and goods Initially, it was also produced in
large quantities due to government intervention, but because people did not spend on shopping, it
led to a decrease in demand, D1 shifting over D2 and even D3, indicating lower and lower prices. and
Q is also getting lower and lower, and in the case of Japan is low to below zero leading to deflation in
the market.

As a result, even though the Japanese government tried to increase supply, demand decreased,
leading to fiscal policy that did the opposite of the government's wishes.

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2.3
Comparing deflation in figure 8 the fiscal policies have backfired with figure 4 when the fiscal policy
works for the economy, we see that:

In the normal case in figure 4, both supply and demand increase, which means the expansionary
fiscal policy succeeds, but in figure 8 only supply increases but demand declines

In figure 4, fiscal policies such as tax cuts and increased public spending can help with economic
growth while in figure 8 it aggravates the situation of the economy. The core factor is consumers'
confidence in the development of the economy, and the stability in the job market helps people to
have a stronger spending pattern when the government increases the amount of money going into
the economy, from which increases the demand for goods and money.

In the case of Japan, the government injects money to support businesses to stay in the economy,
and businesses increase production in the early stages because of support from the government, but
there is a lack of demand in the market because people currently Stop spending maximum and just
want to save money in the bank, exacerbating the crisis. As a result, the Japanese government's
spending policy has failed.

Question 3: Industry Engagement Reflection

During difficult times in 2015, monetary policy tools were focused on stabilizing the economy and
helping to keep liquidity in the market such as changing exchange rate policy with the aim of
improving confidence in the economy. holding VND, reducing the downward pressure of VND, and
creating a legal corridor for exchange rate policy to attract more FDI into Vietnam.

In difficult times 2020, fiscal policy is used more by more public spending and direct tax reduction.
This has directly helped the supply and demand as well as the interests of the people. The goal at
this time is to keep the production and business activities of the private sector from continuing to
deteriorate due to social distancing during the pandemic, which has paralysed both supply and
demand in the market, and severely rather than the disruption of supply and demand and
production activities may cause foreign enterprises to withdraw from Vietnam.

Therefore, the government's use of public financial policy to intervene in tax exemption or reduction
to help businesses not go bankrupt or fire employees because of lack of money due to inability to do
business activities. In addition, the government's increase in public spending also contributed to
creating many direct jobs for people during this period. As a result, the policy of fiscal expansion
during this period helped to prevent Vietnamese society from falling into a job crisis when the
number of bankrupt businesses increased, and the unemployment rate increased.

Compare the correlation in Vietnam's use of fiscal policy during difficult times 2020 and Japan's use
of fiscal policy during 2009-2015 as analysed in question 1 and question 2. In difficult times, the
government will step in to regulate the economy by increasing public spending and cutting personal
or corporate taxes.

The economy recovered and thrived thanks to macroeconomic stability, political stability, and
participation in many FTAs, rising commodity prices within a suitable range and an increase in
domestic production. FDI inflows continue to flow into Vietnam and are strictly managed as well as
focused on effective use.

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However, there are also challenges such as the regulation and stabilization of the exchange rate
becoming more difficult as Vietnam increasingly integrates with the world economy, the economy
will be more vulnerable to foreign exchange transactions. international events when expanding
international trade and facing stiff competition from other countries.

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Reference
OECD n.d, ‘Details of Tax Revenue – Japan’, OECD. Stat, n.d, Viewed date 05 Jan 2022, Available at:<
https://stats.oecd.org/Index.aspx?DataSetCode=REVJPN>.

Takagi. S and Kawai. M 2009, ‘Why was Japan Hit So Hard by the Global Financial Crisis?’, Oct 2009,
Viewed date 05 Jan 2022, Available at:<
https://www.adb.org/sites/default/files/publication/156008/adbi-wp153.pdf>.

The world bank n.d, ‘GDP (current US$) – Japan’, The world bank n.d, Viewed date 05 Jan 2022,
Available at:< https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?
end=2020&locations=JP&start=2007&view=chart>.

The world bank n.d, ‘GDP growth (annual %) – Japan’, The world bank n.d, Viewed date 05 Jan 2022,
Available at:< https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=JP>.

The world bank n.d, ‘Inflation, consumer prices (annual %) – Japan’, , The world bank n.d, Viewed
date 05 Jan 2022, Available at:https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=JP.

The world bank n.d, ‘Central government debt, total (% of GDP)’, The world bank n.d, Viewed date
05 Jan 2022, Available at: <https://data.worldbank.org/indicator/GC.DOD.TOTL.GD.ZS>.

The world bank n.d, ‘Unemployment, total (% of total labor force) (modeled ILO estimate) – Japan’,
The world bank n.d, Viewed date 05 Jan 2022, Available at:<
https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?locations=JP

Trading View n.d, ‘Japan Government Budget, Trading View Economics, n.d, Viewed date 05 Jan
2022, Available at:https://tradingeconomics.com/japan/government-budget.

The world bank n.d, ‘Central government debt, total (% of GDP)’, The World Bank, n.d, Viewed date
05 Jan 2022, Available at:https://data.worldbank.org/indicator/GC.DOD.TOTL.GD.ZS?locations=JP.

Trading View n.d, ‘Japan Unemployment Rate’, Trading View Economics, n.d, Viewed date 05 Jan
2022, Available at:https://tradingeconomics.com/japan/unemployment-rate#:~:text=Japan's
%20unemployment%20rate%20was%20at,280%20thousand%20to%2066.48%20million.

Trading View n.d, ‘Japan Government Spending To GDP’, Trading View Economics, n.d, Viewed date
05 Jan 2022, Available at:https://tradingeconomics.com/japan/government-spending-to-gdp>.

Ryuhei. W 2009, ‘The Japanese Economy in 2009: The year of transition to creative innovation’,
Issues Facing the Japanese Economy in 2009, Jan 2009, Viewed date 05 Jan 2022, Available at:<
https://www.rieti.go.jp/en/columns/s09_0001.html>.

Statista n.d, ‘Japan: Gross domestic product (GDP) in current prices from 1986 to 2026’, Statista n.d,
Viewed date 05 Jan 2022, Available at:<https://www.statista.com/statistics/263578/gross-domestic-
product-gdp-of-japan/>.

Statista n.d, ‘Japan: Inflation rate from 1986 to2026’, Statista n.d, Viewed date 05 Jan 2022,
Available at:<https://www.statista.com/statistics/270095/inflation-rate-in-japan/>.

Smil. V 2012, ‘Japan’s Economy in 2012: Multiple Challenges’, The Asia-Pacific Journal, 07 Jun 2012, ,
Viewed date 05 Jan 2022, Available at:<
https://apjjf.org/2012/10/24/Vaclav-Smil/3768/article.html>.

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Samuelson. R. J 2012, ‘Japan’s economic crisis is a cautionary tale for the United States’, Washington
post, 11Mar 2012, Viewed date 05 Jan 2022, Available at:<
https://www.washingtonpost.com/opinions/japans-economic-crisis-is-a-cautionary-tale-for-the-
united-states/2012/03/09/gIQAb8fx5R_story.html>.

Salsberg. B 2009, ‘The new Japanese consumer’, McKinsey & Company, 01 Mar 2010, Viewed date 05
Jan 2022, Available at:< https://www.mckinsey.com/industries/consumer-packaged-goods/our-
insights/the-new-japanese-consumer>

Yamaguchi. T, ‘Japan government eyes tax revenue at 25-year high in FY2016: sources’, Reuters, 19
Dec 2015, Viewed date 05 Jan 2022, Available at:< https://www.reuters.com/article/us-japan-
economy-budget-idUSKBN0U205E20151219>.

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