Business Cycles
Overview
There is a contraction phase where the economy shrinks, the trough phase where growth is in negativity but manageable; the Expansion phase is when growth rate turns positive and peak phase is where the expansion grows. This happens every time in a country's economy cycles.
With currently the biggest electronic industry in the world, Japan's free market economy is the third largest globally. Best acknowledged by its effectiveness and efficiency in exports; it is competitive and a good business partner. However, the Agriculture sector is dwarfed. The exports can no longer service the national economy, so the country has shifted its attention to domestic demand. After the end of the Second World War, there was high economic growth leading to the second largest GDP in the world by 1967. The 1978 Middle East war, however, was a setback. To deal with the inflation caused, the regime made efforts to change the country into an “energy saving ” country. Fruits of this labor were visible by 1980 with the achievement of demand-led economic growth. Trade expanded as the currency (yen) appreciated. Japan had most importantly; low unemployment rates, high corporate profits, low corporate failures and land prices began steadily to rise. Citizens concentrated their investment into stock and real-estate markets.
It was not until 1990 that recession haunted the country yet again. Stock prices fell rapidly because the economy was dependent mainly on land. This was short-lived. The dependency on foreign demand on information technology stagnated the economy in early 2000 with decline in global IT. This decline led to disruption of the dependent market in Asia and its environs. This troubled the country for 2years.
The Japanese government announced a 'trough' of the economy cycle had been recovered in April 2009. Production had been at a standstill since 2008 with the Private consumption and investments in plants dropping significantly. Before the year ended, the Japanese government publicized that they were in a state of moderate inflation.
Japan should target developing countries with minimal growing populations and having high returns on capitals to invest national savings. These developing nations are more likely to pay back the loans later when they grow richer. These payments would be used in the Japans pension payments and other extra obligations. This will boost the economy softly but significantly.
In Y(-4), with very minimal government spending, low consumption and high investments, Japan's economy starts at a very promising and optimistic level. The investments are at a safe level and the gradual curve is manageable. By Y(+4), there is need for government spending that increases consumption, but with low investments and collapsing net ratio.
Steady increase in government spending increases the taxes revenue and generates new consumption
In contrast, the US net export ratio is unmanageable and therefore costly. Very low government spending crowd out private investments.
United States Business Cycle
The infamous 'Great Depression' of 1929 hit the United States hardest in the country's history. The impact of the world recession that lasted 10 years was massive and destructive. By 1933, unemployment had risen from 3% to 25%, wages and salaries dropped to 42% and farmers lost their farms as drought struck The GDP dropped by half (from $103 to $55 billion).
The most recent (and worst) recession was in 2008 where the economy shrank to 8.9% in the first quarter of 2008. it shrank in five quarters, including four quarter in a row. Two quarters were extreme; they shrank more than 5%. It lasted for 18 months (this too, is the longest since 1929). the economic stimulus program and the cash for clunker’s incentives are responsible for restoration of the economy to its feet. Federal government spending and motor vehicle sales contributed to its improvement. However, this kind of spending cannot drive the economy any longer than it has done.
The impacts of previous recessions were easily manageable. The 1973-75 in particular, which lasted sixteen months was blamed entirely on President Nixon's wage-price policy that kept prices too high thus reducing demand. Recessions are thus natural and though painful, part of the national business cycle of any country.
Work cited
Kozmetsky, George, and Piyu Yue. The Economic Transformation of the United States: 1950-2000, Focusing on the Technological Revolution, the Service Sector Expansion, and the Cultural, Ideological, and Demographic Changes. West Lafayette, Ind: Purdue Univ. Press, 2005. Print.
Itō, Takatoshi. The Japanese Economy. Cambridge, Mass: MIT Press, 1992. Print.
