SOLUTION: Lecture 1 Overview of Japanese Economy In Lecture 1, we look for

Lecture 1 Overview of Japanese Economy

In Lecture 1, we look for answers to the following questions

1. What are the features of Japanese economy?

What to study in Lecture 1?

1. Economy and society of Japan

(1) Overview of the Japanese economy

2. Economic analysis of Japanese economy and society

(1) Classification of macroeconomic sectors

(2) Basic concepts of macroeconomics

(3) Major macroeconomic indicators

Lecture 1 Overview of Japanese Economy

1. How can we evaluate the economic situation of a country or region?

(1) How to evaluate economic situation of a country or region?

(i) Are there any good ways to classify economic sectors of a country?

(ii) Are there good measures to evaluate economic situation of a country?

(2) Classification of macroeconomic sectors

(i) Domestic economy

(a) Private sector

(b) Government sector

(ii) International economy

(3) Important aspects of macro economy

(i) Domestic economy

income, price, employment, inequality, population

(ii) Domestic economy (private sector)

industrial structure (shares of major industries)

(iii) Domestic economy (government sector)

size of the government, government debt

(iv) International economy

international trade, international finance, currency exchange rate

Lecture 1 Outline

1. How can we evaluate the economic situation of a country or region?

2. Overview of Japanese Economy

(cross-county comparisons, time-series comparisons)

(1)Domestic economy (general)

Important aspects of macro economy (Domestic economy (general))

(i)Income

(a)Gross Domestic Products (GDP)

Are there any good measures for income?

・GDP: A good measure of total income of the area

　・GDP per capita (person) GDP/population

A good measure of standard of living of the people reside in the area

Real GDP and nominal GDP

・Nominal GDP: Non-adjusted measure for inflation and deflation (current price)

・Real GDP: Adjusted measure for inflation and deflation (constant price)

・Meaning of the “base year” for real GDP

Base year of real GDP is equal to the nominal GDP of the year

・The other major GDP: Purchasing power parity (PPP) GDP

Inflation and deflation

・Inflation: Continuous rise in general price level of an economy

・Deflation: Continuous fall in general price level of an economy

(b) GDP of Japan and other countries

(1-1-b-1) 2018 Top 10 nominal GDP countries’cross-country comparison

(1-1-b-2) Nominal GDP of Japan from 1952 to 2018

(1-1-b-3) GDP growth rates of Japan from 1953 to 2018

(1-1-c-1) Real GDP per capita from 1500 to 1998 cross-country comparison

(1-1-c-2) Nominal GDP per capita cross-country comparison (2018)

(1-1-c-3) 2018 top 10 nominal GDP per capita countries and regions

(ii) Price (inflation/deflation)

(a) Inflation and deflation

・Inflation: Continuous rise in general price level of an economy

・Deflation: Continuous fall in general price level of an economy

(b) Consumer price index

Are there any good measures for general price change (inflation, deflation)?

・Consumer price index (CPI): A measure of price change of consumer goods and services

・The other major price index: Wholesale price index (WPI)

(1-2-c-1) Inflation rate cross-country comparison (2018)

(1-2-c-2) Inflation rate of Japan from 1956 to 2018

(iii) Employment

(a) Unemployment rates of Japan and other countries

(1-4-a-1) Unemployment rate cross-country comparison (2018)

(iv) Inequality

(a) GINI coefficient

Are there any good measures for inequality?

・GINI coefficient : A good measure of inequality of the area

higher value = unequal

(b) GINI coefficients of Japan and other countries

(1-5-b-1) GINI coefficient cross-country comparison

(v) Population

(a) Population

What are the major important aspects of demography (population) for economy?

・Total population

・Demographic structure

(b) Population of Japan and other countries

(1-6-b-1) Total population cross-country comparison

(1-6-b-2) Total population of Japan from 1920 to 2090

(1-6-b-3) Shares of population by age groups of Japan from 1920 to 2090

Are there any good measures for population aging?

・Old-age dependency ratio: population aged 65 or over/ working age population (aged 15-64)

・Total fertility rate: Estimated number of children born to one female

(d) Population aging of Japan and other countries

(1-6-d-1) Old-age dependency ratio cross-country comparison (2018)

(1-6-d-2) Historical trend of old-age dependency ratio cross-country comparison

(1-6-d-3) Total fertility rate cross-country comparison (2018)

(2)Domestic economy (private sector)

(i) Important aspects of macro economy (domestic economy (private sector)

・Industrial structure (shares of major industries)

(ii) Industrial structure of Japan and other countries

(2-2-1) Industrial structure cross-country comparison (2017)

(3)Domestic economy (government sector)

(i) Important aspects of macro economy (domestic economy (government sector)

・Size of government in the economy

・ Size of government debt

(ii) Government sector in macro economy of Japan and other countries

(2-3-1) Share of the government sector in GDP cross-country comparison (2018)

(2-3-2) Size of government debt cross-country comparison

(4)International economy

Important aspects of macro economy (international economy)

・International trade

(i) International trade and domestic economy

Are there any good measures to infer the impact of international trade on domestic economy?

(i) Dependency to foreign trade

(ii) Trading partners

(iii) Energy dependency to foreign countries

(a) International trade of Japan and other countries

(4-1-a-1) Dependency to foreign trade cross-country comparison (2018)

(4-1-a-2) Major trading partners of Japan (2018)

(4-1-a-3) Energy dependency to foreign countries cross-country comparison (2014)

・ International finance

(ii) International finance and domestic economy

Are there any good measures on international finance which indicate the relationship between world economy and the domestic economy?

(i) Current account: Foreign investment – foreign borrowing

(ii) External net assets (net investment position): External asset – external liabilities

Positive: creditor country Negative: debtor country

External net assets can be interpreted as accumulated current account

(a) International finance of Japan and other countries

(4-2-a-1) Historical trend of current account balance cross-country comparison

・ Currency exchange rate

(iii) Currency exchange rate

(a) Currency exchange rate of Japan

(4-3-a-1) Nominal currency exchange rate of Japanese Yen 1950 to 2018

(4-3-a-1) Real effective exchange rate of Japanese Yen 1980 to 2018

Real effective exchange rate intends to measure comprehensive value of the currency compared to other currencies.

Higher value = higher value of the currency

value of base year = 100

(b) Data sources

・International Monetary Fund, International Financial Statistics

・It is easy to obtain “International Financial Statistics” from “DSI’s Campus Solution

Basic concepts related to international economy

・Export: purchase of domestic goods and service by foreign residents

・Import: purchase of foreign goods and service by domestic residents

・Trade balance: export – import

・Current account: foreign investment – foreign borrowing

・External net asset: external asset – external liabilities

・Currency exchange rate: rate of one currency to be exchanged for the other currency

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