Economic Activities Gross Domestic Product

Question: Discuss about the Economic Activities for Gross Domestic Product. Answer: Introduction Gross Domestic Product (GDP) measures the market value of every economic activities of a country. Non-market services as well as the attributed rents are measured by the GDP. However, it does not include voluntary activities such as the unpaid housework. In the year 2015, GDP in Japan was worth 4124 billion US dollars. In Japan the value of GDP represents 7 percent of the total economy. As per the records, the real GDP in the first quarter of 2016 was 0.5 percent quarter on quarter. It was somewhat faster than the approximate of 0.4 percent in the first preliminary approximate. The first preliminary approximate was published in the month of May (Lockwood, 2015). In the year 2012, the industry sector contributed 27.5 percent of the GDP in Japan. The major industries in Japan are motor vehicles, machine tools, ships, textiles, electronic equipment, steel and processed foods. The automobile industry in Japan produces the second largest amount of vehicles in the world after China. Although, China produces the largest amount of vehicles, Japan remains technologically advanced automobile industry in the world. In the world, Japan is home to six of the top twenty major vehicle companies. In the year 2009, the automobile industry managed to record an enormous 10.5 percent growth in spite of the worldwide financial crisis (Wilks Wright, 2016). Economic System Japan has developed worldwide free market economy. Free market economy is very competitive. In such economy system, business organizations competes with each other in order to gain profit. In the year 2012, the economy in Japan was the third largest in the world. In the late 19th century, Japan was the only economy to be industrialized alongside the Western counterparts. However, as compared to other advanced countries, the sluggishness of the economy of Japan is prominent (Gilpin, 2016). The economy of Japan has been suffering from low levels of GDP as well as the falling in the price levels. Aging population is considered as one of the major factors that caused deflation in Japan. Weak demand is also considered as one of the major factor for long-term deflation. The probable growth ability of the economy of Japan faces a higher obstacle in population ageing and declining rate of birth (Knox et al., 2014). However, Japan has made some structural reform in all the areas of the economy. The coordination of the economic decision includes giving main concern to networking in order to enhance a system of cooperation. This will help the elderly people and the youth to grow together in pursuit of a country with less inequality related economic distortion. This will in turn lead to growth, as the skilled human resources will be nurtured. Japan will require expanding the international flow of people, commodities and information in order to continue the self-motivated growth (Sugimoto, 2014). The economic questions that can be addressed in the case of Japan are as follows: 1. Why the economy of Japan has lost its strength? 2. Why deflation has continued for a longer period in Japan? The first question has been addressed because Japan has witnessed a huge loss in productivity. The main reason for the decrease in productivity is the aging of the population. The aging of population led to the decrease in both the level of investment and consumption. The second question has been addressed because the economy of Japan is suffering from the prolonged deflation. The greatest cause of the deflation is lack in demand. Deflation has also lowered the nominal GDP, thereby increasing the debt ratio and intimidating the fiscal sustainability (Nishizaki et al. 2014). In the first quarter of 2016, the economy of Japan grew at an annualized rate of 1.7 percent. As a result, the economy has been able to avoid technical recession due to the increase in GDP. The anticipated rate of growth suggested that the economy of Japan had managed to shake off the consequences of a slowdown in China. In order to overcome the effects of the aging population, it is very important to increase the participation of labor force. Japan should make the most of the human resources to increase productivity. This is mainly because the working-age population is expected to fall by the year 2050. Educational reforms are very important to increase the productivity in Japan. This will help to improve the tax and the social security systems (Cummings, 2014). Income Equality / Inequality Japan has one of the largest degrees of income equality as compared to any other industrialized countries on the world. The relative identical distribution of income in Japan has been accredited to a number of factors. The factors include the low rates of rural poverty that is caused by land reform as well as industrial decentralization (Lise et al. 2014). However, due to some recent changes there has been unequal distribution of income in Japan. As recorded, the wealth in Japan as well as the income that it produces is much less evenly distributed than the total income. The appreciation in the stock market and the prices of the property in Tokyo led to the degree of inequality in income and wealth in Japan. The exclusion of the capital profits from reported income and the imperfect coverage of the population are the major determinants that led to the unequal distribution of income. The consciousness of rising income gap is increasing in Japan as it is turning into a society of discrepancy (Wang Kutan, 2013). The increasing inequality in income had commenced since 1980s. It shows that since 1980s there has been an increase in the Gini Coefficient that is considered as a measure of income inequality. The Lorenz Curve mainly defines the Gini Coefficient. Figure: Lorenz Curve (Source: Created By Author) If the area between the line of Lorenz Curve and perfect distribution is A and the surface below the Lorenz Curve is B, in that case the Gini Coefficient is A / A+B. The increase in the Gini Coefficient showed that Japan is no longer an equal society. As per the reports, the income inequality in Japan had exceeded the income inequality in U.S. The result has been found with the help of Gini Coefficient that analyzed the total household instead of a specific age group (Oshio Urakawa, 2014). The major causes for the increase in the inequality in income and wealth are the changes in the earnings, the structure of households as well as taxes and social protection in Japan. The aging of the population is also considered as one of the major cause for the increasing inequality. In addition, globalizations as well as changes in technology are also taken into consideration (Yitzhaki Schechtman, 2013). The aging of population became the chief reason for the increasing inequality in Japan. It contributed to 24 percent of the increasing inequality in Japan. The increase in inequality was largely common within the age group of fifty-five to sixty-four. According to a survey conducted by the Ministry of Health, it was found that the aging of population led to 64 percent increase in the Gini Coefficient. The aging of the population along with the declining rate of birth and decrease in population led to the increasing income inequality (Sadana et al., 2016). Another important factor that contributed to the increasing Gini Coefficient is the change in the structure of households. The main cause for the increase in income inequality is the increase in the aged households as well as the decline in the size of households. It has been found that more than half of the aged population is single household. Externalities and Market Failure The kind of externality that moved the economy from one equilibrium to another was complexity externality. It moved the economy of Japan from the equilibrium where both the economic growth and prices of asset were high to an economy where both are low. A complexity externality takes place when the worsening of balance sheets is caused by the devaluation of the bubble. This in turn resulted in incompetent performance of the economy. A complexity externality is caused by the organization failure in the network of the division of labor. The complexity externality forms a vicious circle that traps the economy into a sluggish equilibrium (Menell Meurer, 2013). The externality will also lead to the failure of the market in Japan, as the price equilibrium is not able to reflect the true costs and benefits of manufactured goods. The complexity externality is mainly categorized under negative externality. This will in turn lead to lower production and equilibrium that is more efficient (Mariappanadar, 2012). Japan faced a management failure that is mainly concerned with the organization choice of whether or not to make relation-specific investment (c). However, if all the organization decides to implement relation-specific investment, then the net output that will be obtained is pyh c. As a result, the economy accomplishes optimum. On the other hand, if one organization (i) in Japan anticipates that, another organization (j) in the similar network will not implement the investment; in that case the best step will be not to make an investment. The organization (j) will produce only yl; hence, organization (i) will be able to obtain only pyl c by making an investment. Complexity Externality = p (yh yl) c The growing complexity externality raises the difficulties in making certain the stable economic development. Complexity externality also affected the sustainable development of the society. This in turn led the intervention of the government to influence the economic subsystem of the society in a significant way. The environment of a number of smaller agents changed due to the intervention of the government. The intervention of government stabilized the price and led to the development of the economy (Battiston, 2013). Conclusion It has been concluded that The appreciation in the stock market and the prices of the property in Tokyo led to the degree of inequality in income and wealth in Japan. Aging population is considered as one of the major factors that caused deflation in Japan. The degree of income inequality among the senior age groups has broadened to a great extent. Japan has made some structural improvement in all the areas of the economy. The organization of the economic decision includes giving main concern to networking in order to enhance a system of cooperation. In the near future, the demographics are likely to change due to ageing of population. By the year 2060, the ratio will be 1.19 employees per senior. As a result, this will put burden on the young generation. The wage ratios are also likely to be reduced and this will in turn lead to increase in unemployment. The companies in Japan are likely to compete against the worldwide market and as a result they are trying to decrease the type of social network and social security net. References Battiston, S. (2013). DebtRank Analysis of Japanese Credit Network. Cummings, W. K. (2014).Education and equality in Japan. Princeton University Press. Gilpin, R. 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