Gross domestic product


Gross domestic product is a measure of all currently produced final goods and services evaluated at market prices. The total market value of all final goods and services which does not include any intermediate goods produced in a given year also termed as gross domestic product (GDP), It includes the goods and services produced by means provided with citizen or foreigner - provided used in the country. The GDP includes only the produced goods and services nowadays. The GDP is a monetary measure used to compare the relating stocks of the goods and services produced in different years. GDP is a flow measure of output per time period---for example, per quarter or per year---and includes only services produced during this interval.

  • Intermediate goods- "goods and services purchased for resale or further processing or manufacturing".
  • Ex: the purchase and use of electronic chips in the production of electronic goods. Electronic Chips are the intermediate good.

  • Final goods- "goods and services purchased for final use by the consumer, not for resale or for further processing or manufacturing."
  • Ex: Electronic goods, which is the final product of intermediate goods. Which is used by end consumers.

Final goods and services:

Only the production of the final goods and services enters GDP. The goods which are used in the production of other goods rather than being sold to the final purchasers, what is called the intermediate subjects, are not separately counted in the GDP. Such goods manifest themselves in the GDP because they contribute to the value of the final goods in the production of which they are used. The count of them is separately double count. To give an example, we would not like to count the value of flour used in the realization of the bread separately, but also when the bread is sold.

However, two types of goods used in the production process are counted in GDP. The first of these is currently produced capital goods---business plant and equipment purchases. Such capital goods are ultimately used up in the production process, but within the current period only a portion of value of the capital good is used up in production. This portion, termed depreciation, can be thought of as embodied in the value of the final goods that are sol. Not including capital goods separately in GDP would be equivalent to assuming that they depreciated fully in the current time period. In GDP, the whole value of capital good included as a separate item. In a sense this is double counting because, as just noted, the value of depreciation is embodied in the value of final goods. At a later point we will subtract our depreciation to construct a net output measure.

The other category, containing essentially intermediate goods, that is the part of GDP is inventory investmentthe net change inventories of the final goods awaiting sale or of materials used in the production process. Additions to inventory stocks of the final goods belong in GDP because they are currently produced output. These additions should be counted in the current period as they are added to stocks to get the timing of national product correct; they should not be counted later when they are sold to final purchasers. Inventory investment in materials similarly belongs in GDP because it also represents currently produced output whose value is not embodied in current sales of final output. Notice that inventory investment can be negative as well as positive. If final sales exceed productionfor example, because of rundown of inventoriesGDP will fall short of final sales.

Economy - overview: In the years following World War II, government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation (1% of GDP) helped Japan advance with extraordinary speed to the rank of second most technologically powerful economy in the world after the US. Today, measured on a purchasing power parity (PPP) basis, Japan is the third-largest economy in the world after the US and China. Two notable characteristic of the post-war economy were the close interlocking structures of manufacturers, suppliers, and distributors, known as keiretsu, and the guarantee of lifetime employment for a substantial portion of the urban labor force. Both features are now eroding under the dual pressures of global competition and domestic demographic change. Japan's industrial sector is heavily dependent on imported raw materials and fuels. A tiny agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. Usually self sufficient in rice, Japan imports about 60% of its food on a caloric basis. Japan maintains one of the world's largest fishing fleets and accounts for nearly 15% of the global catch. For three decades, overall real economic growth had been spectacular - a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Growth slowed markedly in the 1990s, averaging just 1.7%, largely because of the after effects of inefficient investment and an asset price bubble in the late 1980s that required a protracted period of time for firms to reduce excess debt, capital, and labor. In October 2007 Japan's longest post-war period of economic expansion ended after 69 months and Japan entered into recession in 2008, with 2009 marking a return to near 0% interest rates. The 10-year privatization of Japan Post, which has functioned not only as the national postal delivery system but also, through its banking and insurance facilities as Japan's largest financial institution, was completed in October 2007, marking a major milestone in the process of structural reform. The Japanese financial sector was not heavily exposed to sub-prime mortgages or their derivative instruments and weathered the initial effect of the global credit crunch, but a sharp downturn in business investment and global demand for Japan's exports in late 2008 pushed Japan further into a recession. Japan's huge government debt, which totals 170% of GDP, and the aging of the population are two major long-run problems. Debate continues on the role of and effects of reform in restructuring the economy.

Consumption and Investment:

Private Consumption:

Private consumption continues revealing movements to choose owing to effects of the packets of policy. As for the trust of consumer, a record player was seen, by staying at low levels. The real income of employees is on a waning tendency. The Index of Synthetic Consumption which synthetizes statistics aside of request (the Income of Family and the Inquiry of Expenditure, etc) and statistics aside of reservations (Indications of the Load of producer industrialist, etc) augmented in August by comparison with July.

As for short term perspectives, it is given that private consumption is supported by the effects of the packets of policy while a record player was seen in the trust of consumer. However, we should nearly control strict job and situations of income and effects of the epidemic of Influenza (H1N1).

Business Investment:

Business Investment has decreased for the year 2009. The Quarterly financial Statistics of States of Societies by the Industry, which is a side of statistical request, shows that the investment of business diminished both in January-March quarter of 2009 and the April-June quarter of 2009.

According to the Bank of Japan the inquiry of short term business , they expect that the investment planned by business in fiscal 2009 decreased for the second successive year both for large manufactures and non-manufactures.

As for short term perspectives, there is anxiety on continuant reduction as they expect that the investment planned by business diminishes considerably while benefits of firm diminish considerably and the uncertainty of economic perspective, shown by factors as risk of disadvantage of worldwide economy, is high.

Housing Construction:

The building of house diminishes in moderation. Construction of owned houses is nearing the bottom. The building of houses for sale and houses for the rent decreased.

As for short term perspectives, weak movements will go on probably owing to strict job and situations of income at present while they expect that the packets of economic policy are efficient.

Public Investment:

The public investment showed regular performance.

The quantity of contracted public works and orders of public works accepted in August from 2009 was higher than in 2008.

As for short term perspectives, an impact from the review of budget and plans should be determined.

Real Exports and Imports:

Exports augment, especially in Asia. By the region, exports in Asia augment considerably. Both exports in the United States and the EU reveal movements of picking. As for short term perspectives, it is given that exports always show a right tendency at present had to draw up an inventory worldwide of progress of fitting and to stretch of the economic recovery of Asia, etc.

Imports are picking up. By the region, Imports from Asia augments. Both importation of the United States and the EU approaches the bottom.

As for the international balance of payments, the surplus in commercial count augmented while the stocks of exportation augmented and import stocks augments in moderation. The deficit in the count of services was flat, by leading so the surplus of trade and scales of services to augment.

Corporate activities and employment:

Industrial Production:

Industrial production rows.

As for short term perspectives, they expect that production continues picking up at the moment, by reflecting the right tendency of exports. Industrial production for the year 2009 is considerably good compared to previous year.

Corporate profits

Corporate profits are decreasing considerably, but the step downwards became moderate. Although the judgement of Societies on the actual conditions of business stays in a difficult situation, it continues revealing movements of picking as a whole. However, the step of record player for small firms is slow. The number of ruined companies was almost flat.

According to the Quarterly financial Statistics of States of Societies by Industry, Corporate profits during quarter of June-April of 2009 decreased by 53.0 % in comparison with the previous year, by posting a decline so for the eighth successive quarter, owing to the fact that the quantity of sales diminished. By the type of industry, benefits of industrial industry diminished by 89.2 % and those of non-industrial industry diminish by 26.4 %. According to BOJ Tankan, they expect that fiscal sales of 2009 post a reduction for the second successive year and they expect that benefits of current of fiscal 2009 post a reduction for the third successive year.

Employment Situation:

The situation of job, on tendency deteriorating, is extremely strict. The total unemployment rate flitted a high 5.5 % in August, diminished by 0.2 points of percentage from the previous month.

The number of new job offers for the year 2009 is decreasing compared to 2008. The efficient relationship of offer of job to the candidates was flat, in an absolute bottom. The number of employees revealed movements of picking newly. Overtime worked in industrial industry augmented, by reflecting the record player of production.

As for the movement of wages, contractual liquid benefits reveal movements of picking. The total amount of liquid benefits decreased considerably as special liquid benefits by including bonuses also decreased considerably.

Prices and the financial market:

Domestic corporate goods prices and Consumer prices:

The prices of the domestic goods of firm were flat for the year 2009.

Consumer prices for the year 2009 in terms of "General, excluding petroleum products, oil, fresh food and some other specific components" are declining moderately.

Macroeconomics activities which are undertaken by the Japan government are

According to the economic report produced by the bank of Japan currently Japanese economy is facing "twin crises", those crises are

  1. Short-term Crisis:
  2. Among "total financial crisis deepening" and "total synchronized recession", Japanese economy faces up a quick shrinkage of exports and a strict financial environment. In these circumstances, the risk of a negative spiral, by including case that the deterioration of real economy destabilizes the financial system besides, which will aggravate economic condition in its turn, grows.

  3. Structural Crisis:
  4. Japanese economy is also put in presence with a "structural crisis". During last decade or so, worldwide economy continued growing hard under total rocking's, while Japan appreciated an economic recovery especially led by exports. Actual financial and economic crisis makes it unavoidable for worldwide economy to be subjected to a "big fitting" as countries in the world explore new scales. On top of that, it is probable that the common challenges facing up the world as the accomplishment of a change in a low carbon society and by the way to guarantee health and longevity will become more and more important when worldwide economy recovers of crisis.

Size and impact of the policy package

This policy package will be supported by national government expenditure of approximately 15.4 trillion yen (total size approximately 56.8 trillion yen).

This policy package is expected to boost real GDP growth rate by around 2 percentage points in FY 2009 and create around 0.4 to 0.5 million jobs (in one year) from increased demand.

Immediate measures - "Avoiding a negative spiral" -

Measures to support employment:

  1. Increasing the subsidies for employment adjustment
  2. Measures to support re-employment and develop vocational skills
  3. Measures to create new jobs
  4. Measures to protect dispatched workers, measures to prevent withdrawals of job offers and support for foreign workers. Enhancement of the protection of dispatched workers, including the prevention of Premature termination of temporary work contracts
  5. Housing and daily-life support measures.

Financial measures:

  • Promotion of smooth exercising of financial intermediary functions
  • Support for financing for small and medium-sized enterprises (SMEs)
  • Support for financing for medium and large companies
  • Support for financing for overseas business projects undertaken by Japanese companies
  • Utilization of the Banks' Shareholdings Purchase Corporation
  • Measures to support the stock market
  • Response to the disclosure systems and the accounting procedure and clarification of the tax treatment
  • Facilitation of financing for mortgages and land transactions
  • Support measures for developing countries, mainly in Asia, in which Japanese companies are operating
  • Monetary policy

Growth strategy - "Investing for the future"

(1) Solar power generation

  • Introduction of a new system for power companies to purchase electricity generated from solar power such as residential sector.
  • Promotion of the introduction of solar power generation in public buildings and houses

(2) Fuel-efficient vehicles and energy-efficient equipments

  • Support for environmentally-friendly vehicles and home electric appliances.
  • Acceleration of development of zero emission buildings.
  • Promotion of fuel cells, heat pumps and building CNG stations
  • Establishment of "Local Green New Deal Funds"

(3) Revolution in transportation and infrastructure

  • Innovation of transportation and physical distribution infrastructures based on low-carbon technologies.

(4) Turning Japan into a resource-rich country

  • Establishment of a system for recycling products that contain rare metals and other resources.

Development of infrastructure:

(1) Realizing the potential of the agricultural, forestry and fisheries sectors

  • Implementation of the farmland reform and securing core farmers.
  • Revitalization of rural areas, forestry and fisheries sector.

(2) Development of cutting edge technologies and enhancing human resources:

  • Invitation of world-leading researchers and renovation of infrastructure for the world-class cutting edge research and enhancement of university education and research infrastructure
  • Enhancement of industry-academia-government collaboration

(3) Development of infrastructure:

  • Enhancement of harbour and airport infrastructures, Completion of highway network.

(4) Realizing the potential by utilizing IT:

  • Expansion of measures to ensure a complete transition to digital terrestrial TV Broadcasting in 2011.
  • Regional vitalization utilizing ICTs (including the development of Ubiquitous Towns)

(5) "Soft power" and tourism:

  • Development of world's leading tourism destinations
  • Drastic improvement of access from abroad

The Keynesian Explanation:

In the macroeconomic theory Keynesian, the fluctuations of economic cycle are provoked by the entire request that crumbles. The consumption is considered to be a relatively at road surface, since the weakening in the entire request is due to the low investment. Keynes exactly has not explained why the investment crumbled; rather he attributed it "to the liveliness" in the community of matters. Because the decline of investment is not attributed to anything specific in the theory Keynesian, the theory is difficult to refute. In spite of everything, in Japan, there was a recession that was not corrected after a drop in the investment.

In the theory Keynesian, the prices are "sticky" or rigid in the direction down, so they do not adapt themselves rapidly to return the balance. Although the economy might eventually restore its equilibrium, equilibrium is not inevitable. Even if price adjustments eventually restore equilibrium, Keynesians believes that the process demands too much time. According to Keynesians, to recover the recession, the government must chase political budgetary active lowering tariffs and being born happening to increase the entire request and to compensate the fall in the investment. Keynesians prefers habitually governmental developing expenses. Many policies in Japan correspond to the prescription of Keynesian theory, but they lacked of contributing the economy out of the recession.

The frame Keynesian allows a trap of liquidity in which fact to move the curve of LM has no effect at complete request. Keynesians can show in tries missed by the Bank of Japan to re-swell to revive its economy as the obviousness supporting their theory.

The resolution of policy Keynesian when economy is in a trap of liquidity is to make cause the government directly to firms instead of creating liquidity in the banking system. Japan has the Program of Loan and Fiscal Investment (FILP), a branch out of budget of the Japanese government of value about 70 out of hundred expenses in the budget of general count. FILP accepts the most part of the silver of the savings accounts of post office. As soon as they gather some silver, funds are allocated to the borrowers by the Office of Fund in trust of Ministry of Finance and agencies different from the office.

The politicians in the Liberal Democratic Party (LDP) aim the most part of these governmental agencies. The contour of Unit of Economist's intelligence declares that "the silver of FILP is canalized towards the traditional supporters of the LDP, as those in the industry of building and without necessary consideration of prices and advantages of specific plans "(EIU on 2001, p. 30). Although this approach of Keynesian of governmental direct conferment really avoids the reluctance of banks to cause, it does not help recovery of economy. Funds are not allocated according to consumer's priorities based on market, but to the businessmen most politically linked. It causes a higher price of borrowing for these private funds recherchants, by denaturing economy more. Also, because loans are often extremely risked, the fiscal condition of Japan deteriorates more. As soon as FILP and other debts "out of budget "are included. Japan's debt is estimated to exceed 200 percent of GDP (EIU 2001).

The Monetarist Explanation:

The Monetarist school, as Keynesian, has no problem finding a reason for the recession of Japan. Monetarists allocate the responsibility of recessions in shrinkage in the monetary mass or a slowing down in the growth rate. In 1987 the bank rate was lowered in 2.5 for one hundred to stimulate domestic request. A valuable air bell of capital followed. To stop the air bell, the bank rate was five times raised, in 6 for one hundred during 1989 and 1990, by decelerating conferment and blasting of air bell. Since monetary shrinkage, the economy of Japan was in a recession. Monetarists can support that BOJ contracted too quickly monetary expansion and caused economic slowing down, a lot as the history of Milton Friedman in Big Shrinkage as for the Big Depression of America.

Traditionally, monetarists recommended re-swelling after a monetary collapse to avoid a continuant depression. Monetarist's recommends it because they traditionally saw the curve of LM goes down so comparatively abruptly descending and the EAST bows it that more flat. This branch of monetarism saw it's carried out policies and fails in Japan.

Some people monetarists support that interest rates should be ignored and that the monetary mass himself must be controlled. Milton Friedman recommended a monetary rule to develop the monetary mass in an annual rate of 3-4 for one hundred. The monetarists which recommend a monetary rule would show probably that Japan should have followed a monetary rule before recession. Quick expansion and then shrinkage of the monetary mass, monetarists would apply, causes the air bell of capital and its fact to break subsequent.

The control of the monetary mass can be difficult, especially with the aim of the condition of the banking system of Japan. The middle 1997 in the middle 1998 Japan augmented its monetary foundation of 10 for one hundred, but the broadest monetary groups went up of only 3.5 for one hundred (Herbener on 1999). It is because Keynesians call a trap of liquidity wrongly. The lack of expansion of credit, even after the expansion of the monetary foundation, is not owing to the investors expecting that the future interest rates go up, but are rather caused by the huge quantity of bad debt in the banking system which makes banks not have to lend (Herbener on 1999).

In the recession of Japan not all monetarists approaches can be moved aside as a complete failure as theory Keynesian can. However, monetarist's policies did not help Japan of recession.

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