Keynes Theory and Japan

Topics: Inflation, Macroeconomics, Great Depression Pages: 2 (342 words) Published: March 10, 2012
As can be seen from the Keynes’s theory, which denied that economic cannot self-stabilizing in equilibrium and market not always work efficient (Cary, B, 2009). Because of people always save most of incomes that will decrease demand and GDP. And then it will cause massive unemployment and economic depression. Under this situation, government should intervene and play an important role to use the policy to manage economy, seeking to maintain high levels of employment and stable prices (Cary, B, 2009). In the capitalism market, crisis of capitalism and unemployment have never been eliminated, only rely on the visible hand of government intervention to break away from slump and unemployment problems, into a virtuous circle (Eltis. W &Sinclair. P, 1988). The state usually can implement two main measures for achieving these objectives: fiscal policy and monetary policy.

Japan was able to establish and maintain itself as the world's second largest economy from 1968 until 2010. It has been replaced by China become the third one. In the aftermath of the 2008 global financial crisis, the Japanese economy began to undergo a strong period of economic recovery. In 2010, Japan’s real GDP growth (constant prices, national currency) was 3.938 percent – the fastest growing economy among the G-7 nations for the year. Japan has been struggling to combat deflation for more than a decade. From 1999 to 2009, there were only three years in which Japan did not experience deflation. Even then, inflation rates (average consumer price change) were at 0 percent for two years (2004 and 2007) and a mere 0.3 percent in 2006. In 2010, Japan experienced deflation once again with an inflation rate (average consumer price change) of negative 0.698 percent.

Cary, B, (2009), Keynesianism, available from: [Accessed 12 February 2012]

Eltis. W &Sinclair. P, (1988) Keynes and Economic Policy. Published by: the macmillan...
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