The Relationships Among Real Gdp Growth Rate, Unemployment Rate and Consumer Price Index of Japan Between 1999 and 2009

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IB Economics

Economics Task 11

Block G| Louis Cheng

Louis Cheng

The relationships among real GDP growth rate, unemployment rate and consumer price index of Japan between 1999 and 2009 In this essay, we will be looking at Japan’s economy through the 3 macro-economic indicators. The economy of Japan is the second largest in the world in terms of nominal GDP, after the US. Economic growth in Japan, however, has been slow in the recent decade: throughout the 1990s her growth was slower than growth in other major industrial nations, from 4.5% per annum in the 1980s, real GDP rose just 1.5% p.a. in the 1990s and 0.8% p.a. in the 2000s. We will investigate the relationships among the 3 indicators in Japan, through which we look at a kind of deflation unique to Japan. The real GDP growth rate measures the increase in value of all final goods and services produced within a nation in a given year - taking into account of inflation(or deflation) but not purchasing power parity. Real GDP growth rate of a certain year can be calculated from the formula (GDP of current year - GDP of previous year) ÷ GDP of previous year × 100% Below shows the trend graph of real GDP growth rate of Japan in the past 10 years:

The relationships among real GDP growth rate, unemployment rate and inflation rate of Japan between 1999 and 2009

1

Louis Cheng

Real GDP growth rate of Japan in the past 10 years 3.50 1.75 0 Percentage -1.75 -3.50 -5.25 -7.00

1999

2000

2001

2002

2003

2004 Year

2005

2006

2007

2008

2009

The Japan’s real GDP growth rate is rather low, not exceeding 3.5% growth rate in any of the years; in 2008 and 2009 it falls below zero, influence by the global financial crisis, indicating Japan’s total value of final goods and services is decreasing. Moving on, the unemployment rate is the percentage of the total labor force that the unemployed population occupies, with the formula no. of unemployed ÷ (no. of employed + no. of unemployed) × 100% Below shows the trend graph of unemployment rate in the past 10 years:

The relationships among real GDP growth rate, unemployment rate and inflation rate of Japan between 1999 and 2009

2

Louis Cheng

Unemployment rate of Japan in the past 10 years
6.0

4.5 Percentage

3.0

1.5

0 1999

2000

2001

2002

2003

2004 Year

2005

2006

2007

2008

2009

The unemployment rate fluctuated around 4.5%. Conventional economic theory says that low real GDP growth rate comes with high unemployment rate, as low GDP growth means low output growth, leading to low employment. However, Japan has kept its unemployment rate relatively low, especially in recent years, when compared to a few other developed countries: Unemployment rates in 4 of the developed countires in the past 10 years 9.00

6.75 Percentage

4.50

2.25

0 1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Japan

Australia

United Kingdom

United States

The relationships among real GDP growth rate, unemployment rate and inflation rate of Japan between 1999 and 2009

3

Louis Cheng

As this low unemployment rate is not due to job growth, it implies that either people simply drop out of the job market, or employers employ more than enough employees. In either case, the annual household income is lowered. According to Wikipedia, Japan’s annual household income has been decreasing for 2 decades. This leads to less purchasing and consumption of goods and services, and demand for goods and services decreases as a result. When almost all goods and services experience a drop in demand, their prices fall. Deflation sets in, as general price level for them persistently decreases. Below shows the consumer price index of Japan for the past 10 years:

CPI in Japan in the past 10 years
101

100 Percentage

99

98

97 1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009...
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