ECON 1101 Macroeconomics - Oil Price on Japan’s GDP
Using the short-run AD/AS model and other appropriate diagrams, demonstrate and explain the effects of the following on GDP, inflation, the fiscal balance and the trade balance on any (non-USA) economy.
- For the case of an oil importing country, an increase in the world price of oil.
Where to find data
- International Monetary Fund, World Economic Outlook Database 2018: https://www.imf.org/external/pubs/ft/weo/2018/01/weodata/index.aspx
- Organisation for Economic Co-operation and Development (OECD) Database: https://data.oecd.org/
NOTE: Harvard styles of Writing , Standard: MBA Standard. I need 300 words in addition to the diagrams. Kindly check the correctness of the diagram below.
You are not required to look at any specific economy, but remember that different economies may be affected in different ways. Try to identify the reasons for this, and illustrate this with reference to specific economies. Marks will be awarded for use of appropriate examples, data, etc. You may use any country and compare it another country
Outline and explain the short term impart of oil rise on the “oil importing country, an increase in the world price of oil”. Additional data to explain trends between 2006- 2018
The AD/AS, fiscal balance and the trade balance may be wrong but look at and draw the appropriate to illustrate the point and some other diagram from the show the inflation rate, GDP characteristic for the period ( 2006-2018) trade balance, unemployment rate and other relevant information,
Answer
The Impacts of rising World’s Oil Price on Japan’s GDP, the fiscal balance, inflation and the trade balance
The Impacts of rising World’s Oil Price on Japan’s GDP, the fiscal balance, inflation and the trade balance
Graph: Japan’s Inflation rate, Real GDP, Trade balance and Fiscal balances
Oil is an essential input in many production activities. Thus, a rise in the world prices will greatly impacts many importing countries like Japan, whereas it’ll be beneficial to the exporting economies due to increased foreign earnings. Japan is a major oil importer, it imports nearly all the oil that is consumed in this nation. The price rise will therefore disrupt the supply for oil. Demand will also be reduced from the high prices. IEA.org (2018) noted that Japan is experiencing a structural demand decline. This nation will incur greater costs of production. Assuming that the Aggregate demand remain unchanged, the reduction in the supply of oil from SRAS0 to SRAS1, will result in inflation rising from I0 to I1. This will interpret to a fall in real GDP from Y0 to Y1. Thus it can be concluded that the impact of world oil price will be inflationary on Japan’s economy.
The reduced GDP will interpret to a fall in the tax revenue the government raises. The high oil prices have been noted to causes a deterioration of the fiscal balances for net oil importing nations (Sánchez, 2011). Japan’s fiscal balances has deteriorated as a result. This is represented by the pivoting down of the FB line from FB0 to FB1. The new line is already indicating a fiscal balance deficit.
Due to the rise in oil price, there will be a discouragement in its importation. Thus, the trade balance for Japan rises. The improvement in Japan’s trade balance is represented by the shifting of the TB line from TB0 to TB1. The line is shifting upward towards the trade balance surplus.
The graphs on the appendices show the changes of various macroeconomic variables for Japan for the period 2006-2018.
References
IEA.org. (2018). Market Report Series: Gas 2017. [Online] Available at: https://webstore.iea.org/market-report-series-gas-2017-2 [Accessed 11 Sep. 2018].
Imf.org. (2018). World Economic Outlook (April 2018). [Online] Available at: https://www.imf.org/external/datamapper/datasets/WEO [Accessed 11 Sep. 2018].
OECD (2018). General government deficit (indicator). Doi: 10.1787/77079edb-en (Accessed on 12 September 2018).
Sánchez, M. (2011). Welfare Effects of Rising Oil Prices in Oil?Importing Developing Countries. [Online] Wiley.com. Available at: https://onlinelibrary.wiley.com/doi/full/10.1111/j.1746-1049.2011.00137.x [Accessed 11 Sep. 2018].
Tradingeconomics.com. (2018). Japan Balance of Trade. [Online] Available at: https://tradingeconomics.com/japan/balance-of-trade [Accessed 11 Sep. 2018].
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