April 2014: Are we ready for May?

How should you spend Spring Break? From the point of view of preparation for the IB Economics exam, the only requirements are that you rest, “recharge your batteries”, and follow current economic issues, by reading newspapers and/or watching the TV news and/or engaging in discussions with your parents and friends.

The day for the rise in the consunption tax has already passed. But its effects cannot yet be measured. Consider its implications for both microeconomics theory and the Japanese macroeconomy.
1)Are prices rising? (does the incidence fall mainly on the consumers?) 1)Will firms’ profits fall (if they decide to absorb part of the cost)
1) Will aggregate demand fall (thus destroying Japan’s fragile recovery from recession)?
2) Will cost-push inflation help to pull Japan out of the deflationary spiral?
3) Will the government’s budget deficit be reduced? (It might rise if Japan falls back into recession leading to a fall in direct tax revenues and a rise in government expenditure on social security etc as unemployment rises).

We need to watch the effects over the next few months.


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