Japan's economic growth, inflation trends, and government policy's role in fostering growth and managing inflation in 2014 2024

Research object This essay aims to analyze trends in economic growth and inflation in Japan over the period from 2014 to 2024, focusing on the effects of government policies on these m

HỌC VIỆN NGÂN HÀNG KHOA: NGÂN HÀNG

MAJOR ASSIGNMENT SUBJECT: MACROECONOMICS

TOPIC JAPAN'S ECONOMIC GROWTH, INFLATION TRENDS, AND

GOVERNMENT POLICY'S ROLE IN FOSTERING GROWTH AND

Vũ Minh Anh

Nguyễn Thị Ngọc Anh

Nguyễn Thị Hoa Nguyễn Viết Đức Phạm Trung Anh

2 Mai Thu Ha 26A4010498

3 H6 Ngoc Nam Anh 26A4012264

4 Ong Thị Xuân Mai 26A4011375

5 Vũ Minh Anh 26A4010467

Nguyễn Thị N

6 SUVS EINES 26A4010057

Anh

7 Nguyễn Thị Hoa 26A4010896

§ Nguyễn Viết Đức 226A4010494

9 Phạm Trung Anh 26A4010462

TABLE OF CONTENTS

A INTRODUCTION

1 Research object

This essay aims to analyze trends in economic growth and inflation in Japan

over the period from 2014 to 2024, focusing on the effects of government policies on

these macroeconomic factors

2 Research purposes

The primary aim of this essay 1s to examine economic growth and inflation

trends in Japan from 2014 to 2024 Specifically, the study seeks to assess the

effectiveness of Japan’s macroeconomic policies in fostering sustainable economic

growth while keeping inflation under control This research will offer a structured

analysis of how Japan’s government has managed these economic factors over the past

decade and identify lessons that may inform future policy-making

3 Research tasks

Examine major economic indicators like GDP growth and inflation rates in

Japan from 2014 to 2024 Analyze the impact of fiscal and monetary policies

implemented by the Japanese government over this period Explore the relationship

between economic growth and inflation, looking at how these two factors affected one another Evaluate the challenges Japan encountered in maintaining a balance between growth and inflation, and assess the effectiveness of government responses through its policy measures

4 Research scope

Time Frame: The study spans the years 2014 to 2024, examining the impact of

global events, including trade tensions and the COVID-19 pandemic, on Japan's

economy

Key Indicators: The analysis will center on GDP growth and inflation rates, along with

an evaluation of corresponding government policies Research Methodology

5 Research methods

Secondary Data Sources: To study Japan’s economic growth, inflation, and

government policies, secondary data from reputable sources will be prioritized

Data Analysis Methods:

-Time-Series Analysis: Time-series analysis will be applied to study trends in

GDP and inflation over the years from 2014 to 2024, aiming to identify fluctuations

and the impacts of global events like the COVID-19 pandemic and trade tensions

Econometric Models: Regression models will be used to examine the

relationship between key variables, such as economic growth and inflation, with

government policy measures

Policy Analysis: Government fiscal and monetary policies will be assessed

through official documents and reports to determine the effectiveness of each policy in

promoting growth and controlling inflation

B CONTENTS

I Theoretical basis

1.1 Economic growth

a Definition

Economic growth is the increase in the production of goods and services 1n an

economy over time, often measured by the growth rate of Gross Domestic Product

(GDP) Economic growth reflects improvements in labor productivity, technology, and

other production factors

**Example of Economic Growth:**

In the years following the 2008 financial crisis, the United States experienced a

significant economic recovery By 2019, the GDP had increased steadily, reaching

about $21.4 trillion This growth was driven by several factors, including a rise in

consumer spending, increased business investments, and improvements in the job

market, which resulted in a lower unemployment rate Additionally, technological

advancements in industries like technology and healthcare contributed to higher

productivity and economic output As a result, the standard of living for many

Americans improved during this period, showcasing the positive effects of sustained

economic growth

Measuring Economic Growth y= (dY+Y)x/00%

(where Y is the size of the economy, and y is the growth rate.)

b The factors leading to economic growth

Labor Force Size and Skills: The development of the labor force significantly affects

Inflation is a gradual loss of purchasing power that 1s reflected in a broad rise

in prices for goods and services over time (Jason Fernando)

When the overall price level increases, your money purchases fewer goods and

services than it previously did

An illustration of inflation in Vietnam is as follows: In 2020, Nguyen Van A

spent merely 35,000 VND for a bowl of pho However, by early 2023, he was required

to pay 50,000 VND for the same bow! of pho Consequently, consumers have had to

allocate a greater sum of money for identical goods If numerous goods experience

similar price increases, it will contribute to nsing inflation

b Reason

An increase in the money supply is the root of inflation, though this can play

out through different mechanisms in the economy A country’s money supply can be

increased by the monetary authorities by:

° Printing and giving away more money to citizens

° Legally devaluing (reducing the value of) the legal tender currency

° Loaning new money into existence as reserve account credits through the

banking system by purchasing government bonds from banks on the secondary market

The Consumer Price Index (CPI) is a relative indicator, expressed as a

percentage, that reflects the trends and levels of general price fluctuations over time

for goods and services consumed daily by individuals

Currently, inflation 1s categorized according to the inflation rate and can be

divided into three levels as follows:

Runaway The inflation rate stands at 10%, remaining below 1000% per annum Inflation When inflation attains this level, a nation’s economy will experience

significant disruption; the currency will also depreciate markedly,

leading to a collapse of the financial market

Hyperinflation | This is a highly critical inflation scenario, characterized by an annual inflation rate exceeding 1000% When hyperinflation occurs, the nation's

economy descends into chaos and disaster, making restoration to

1.3 THE AGGREGATE — DEMAND (AD) CURVE AND THE AGGREGATE - SUPPLY (AS) CURVE

Definition of THE AGGREGATE — DEMAND (AD) CURVE: "AD

Curve" in economics stands for "Aggregate Demand." The AD 7

curve represents the total demand for goods and services in the Pe

economy at various price levels within a specific period The

ageregate demand curve is a significant concept in macroeconomic theory, illustrating the relationship between price levels and the overall demand in an economy

a Theory of the AD Curve

The aggregate demand (AD) curve typically slopes downward, meaning that when the general price level in the economy decreases, aggregate demand increases

Y=C+I+G+Nx

The downward slope is explained through three primary effects:

° The Interest-Rate Effect (P and 1): When the price level decreases, the demand for money decreases, leading to lower interest rates Lower interest rates encourage businesses and individuals to borrow more, which increases investment and

consumption, thereby raising aggregate demand

e The Wealth Effect (P and C): When the price level decreases, consumers'

purchasing power increases They feel wealthier and spend more, which also increases

ageregate demand

° The Exchanpe-Rate Effect (P and NX): When the price level decreases, øoods and services of a country become cheaper compared to those abroad, increasing net exports This also contributes to an increase in domestic aggregate demand

b Factors Shifting the AD Curve

The AD curve can shift to the right or the left due to non-price factors,

including:

e Fiscal and monetary policies (G)

e Changes in exports and imports (NX)

e Changes in business investment and consumption (1)

Example:

When the government increases spending or the Central Bank lowers interest rates, this can boost aggregate demand and shift the AD curve to the right

The AD curve shifts to the left when businesses reduce P

investment due to lower profit expectations

AD, AD:

The AS Curve in economics stands for Aggregate Supply The AS curye represgnts the

total amount of goods and services that businesses are willing and

Short-Run Aggregate Supply (SRAS):The short-run AS curve

generally slopes upward, meaning that as the price level rises, the

amount of goods and services businesses are willing to supply

also increases The SRAS curve has an upward slope because, in

the short run, some production costs (such as wages and raw

material prices) may not adjust as quickly as output prices,

leading businesses to produce more to take advantage of higher

selling prices

P LRAS

Long-Run Aggregate Supply (LRAS):In the long run, the AS

curve is considered vertical, reflecting the potential output level of

the economy, which is independent of the price level This

represents the maximum sustainable output the economy can

The LRAS curve illustrates the limit of the economy’s output

capacity when all production factors are fully employed

1.4 Government policies promote long-term economic growth

1.4.1 Saving and Investment

Saving and investment are crucial components of economic growth Savings provide the resources for investment, which leads to capital accumulation, job creation, and productivity improvements

Ex: Japanese households have traditionally maintained high savings rates due to

cultural values emphasizing financial security Savings are often deposited in banks or postal savings accounts, with a preference for low-risk options High savings provided capital for industrial expansion, contributing to Japan’s rapid economic growth from the 1950s to the 1980s and helped maintain economic stability, particularly during

global crises

1.4.2 Investment from Abroad

- Investment from abroad is another way for a country to invest in new capital,

Ex: In 1991, India undertook significant economic reforms that included liberalizing

its capital markets This allowed foreign investors greater access to the Indian stock market and other financial assets The liberalization of capital markets has led to a

significant increase in FPI into India In the years following the reforms, FP] inflows surged, with billions of dollars being invested in Indian equities and bonds annually

1.4.3 Education-Health and Nutrition

Investments in education, health, and nutrition are essential for building human

capital, which directly influences economic productivity and long-term development

Healthy, well-nourished, and educated populations are more productive, innovative, and capable of contributing to sustainable economic growth

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Ex: The National School Lunch Program (NSLP) in the United States provides

nutritionally balanced lunches to children from low-income families The NSLP,

established in 1946, is a federally assisted meal program in the United States that

provides nutritionally balanced, low-cost, or free lunches to children in public and

nonprofit private schools It is administered by the Food and Nutrition Service (FNS)

of the U.S Department of Agriculture (USDA)

1.4.4 Property Rights and Political Stability

Property rights and political stability are essential for fostering a conducive

environment for investment, innovation, and long-term economic growth These

factors build trust in the economy, protect individual and business interests, and attract both domestic and foreign investments

Ex: Brazil has implemented various land reform policies over the years aimed at

redistributing land and securing property rights for smallholder farmers and

marginalized communities The National Institute of Colonization and Agrarian

Reform (INCRA): Established to implement land reform policies, INCRA facilitates land acquisition for agrarian reform and assists in formalizing land titles By clarifying

property rights and redistributing land, Brazil has reduced tensions and conflicts

between landowners and landless workers Secure land titles have decreased disputes and violence related to land ownership

1.4.5 Free trade

-Inward-Oriented Policies: Inward-oriented policies focus on reducing a country’s

reliance on international trade by encouraging domestic production and limiting

umports These policies aim to protect local industries and promote self-sufficiency,

but they can also hinder economic growth if not implemented carefully

Ex: After gaining independence in 1947, India adopted inward-oriented economic

policies in the 1960s, particularly during the 1970s and 1980s, aimed at achieving

self-sufficiency and reducing dependence on foreign imports.he Indian government implemented strict regulations on foreign direct investment (FDI) Foreign companies

were often required to enter joint ventures with Indian firms, which limited foreign ownership and control All foreign investments needed government approval, which

created barriers to foreign capital inflow

II

-Outward-Oriented Policies: Outward-oriented policies focus on integrating a

country’s economy with the global market by promoting trade, attracting foreign

investment, and encouraging exports These policies emphasize openness to

international trade and competition, enabling countries to benefit from comparative advantages and global demand

Ex: Since gaining independence in 1965, Singapore adopted an EOI strategy that

focused on developing industries aimed at producing goods for export The

government promoted manufacturing by providing incentives for both local and

foreign companies to set up production facilities Sectors such as electronics,

pharmaceuticals, and chemicals were prioritized Singapore worked to develop a

diverse range of export products, reducing reliance on any single industry or market

1.4.6 Research and Development

Research and Development (R&D) plays a crucial role in driving innovation,

technological progress, and productivity, which are essential for long-term economic growth Countries and businesses that invest in R&D can develop new products,

improve production processes, and stay competitive in global markets

Ex: South Korea’s strategic R&D investments have made it a leader in green energy

Hyundai is a pioneer in hydrogen fuel cell technology, developing vehicles like the

Nexo hydrogen car The government supports R&D in electric and autonomous

vehicles to reduce dependence on fossil fuels R&D mnvestments have led to high-

skilled employment , contribute significantly to its GDP opportunities, especially in technology and engineering fields

1.4.7 Population growth

Population growth can have both positive and negative effects on economic

development, depending on how well a country manages the challenges and

opportunities it brings A growing population can expand the labor force and

consumer base, but it can also strain resources 1f not accompanied by adequate

infrastructure, education, and employment opportunities

Ex: In the 1980s, China implemented the One-Child Policy to curb rapid population

growth, fearing it would strain resources and limit economic progress China’s

experience illustrates both the benefits and challenges of managing population growth

The demographic dividend fueled rapid economic growth for several decades, but

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