Unnatural Economics: The Economy Of Japan

Unnatural Economics Name: Institutional Affiliations: Unnatural Economics For the longest time in macroeconomics, it is thought that there exists no great tradeoff between rates of unemployment and inflation. Nevertheless, inflation is not solely determined by the rate of unemployment, but also at the projected rate of inflation. The equation derived from this observation is given in the following equation: Inflation = U (f) + estimated inflation. In this case, the function U (f) defines some form of an employment rate. In this paper, the focus is on the appropriate manner of declining the rates of deflation with the specific case of the economy of Japan. The essay focuses on the short- and long-term run of inflation rate depending on the unemployment rates of the country. The article illustrates that by the federal government selling most of its bond, there will be a surge in the amount of yen in circulation. Thus, the banks will offer their loans at lower interest rates. Consequently, the borrowing cost will go down, and there will be more investors who will tend to borrow. Since there will be more money in circulation, an increase in demand for products will also increase. Increase in demand means that producers will need to increase the supply of their produce. Therefore, manufacturers will need to employ an increased number of people, resulting in the reduction in unemployment rates. However, due to the high demand for labor wages will have to rise, resulting in high costs of production. The high cost of production, on the other hand, will lead to higher prices for commodities. Therefore, in this case, the Japanese central government will manage to reduce the rates of unemployment, but the rates of inflation will escalate. Consequently, the Japanese yen will fall in its value compared to the other currencies. Subsequently, the Japanese government will need to spend increased funds to export their good will their imports will be at a lower price. The rate of deflation will decline drastically at the end. 57150638175GDPAD2AD1SRASLRASJapan’s EconomyGDPAD2AD1SRASLRASJapan’s EconomyFigure 1 below explains the situation. right3137535Price level00Price level right332740P200P2 47625231775P100P1 38290507620P200P2257175036195Y100Y1 After the experience in 2008, most of the macroeconomists were ready to look into their strategies to avoid such situation again. There has been a need to consider inflation rates to the rate of unemployment since the 1980s. For instance, at the onset of the 80s, the rate of unemployment was high, al...