Economics is to study the economy. There is a scientific aspect and a value judgment aspect as to research. In the scientific aspect, it is aimed to (1) describe the economy and (2) find the rule of law. On the other hand, in terms of value judgment, (3) to present a desirable economic condition, and (4) present a means to realize it. Let's start with an explanation from what the economy is.
When asked "What is economy?", it may be difficult to return the answer quickly. Speaking of economic news, I heard that the economy is bad or bad, prices are rising or falling, how employment and wages are, how fast the exchange rate and the stock price got higher or cheaper. In other words, changes in various economic indicators and analysis of the reasons are economic talks. Economy, abstractly, refers to the production activities of goods and services as seen at the national and world level. Economic activity continues constantly every day. The state of activity is caught in economic indicators. When indicators change, it is reported as news. Human production activities are various. Even if you are not engaged in direct production activities, you may be involved as consumers of products and services produced. Therefore, there are activities of production and consumption as many as human beings.
Economic activity can be grasped by input and output. Economic activity is to create goods and services, but nothing is not born. Input is necessary for production. The representative thing to put in is labor. In addition to production, places (land) and equipment are also necessary. In agriculture, agricultural lands, agricultural machinery and equipment, industrial sites, factory sites and production machinery correspond to this. Land and facilities are called capital in economic terms. Economic activity is the activity of inputting capital and labor, producing goods and services.
Three economic activities are the subject of households, companies and governments. Households are so-called households, consisting of workers and dependents. The economic function of households is to earn income through workers' labor, some of which go to consumption of goods and services that workers themselves and their dependents do It is like that. Households provide labor to companies and receive wages. We use wages to purchase goods and services produced by companies. In this case it is called consumption. Companies also purchase goods and services (such as personal computers, production machines, consignment services, etc.) produced by another company, in this case it is called investment. Companies administer the function of investing, preparing production facilities, purchasing raw materials, hiring workers, and producing goods and services. The government collects taxes from households and companies, and purchases goods and services produced by companies with that money. This is called government expenditure. The government collects taxes from households, purchases goods and services from businesses with that money, and provides money to households. Households, companies, and governments are closely related through money exchange. It is economic activity that mutual money flows among these three people, and that society as a whole produces and consumes goods and services.
The extent of activities such as whether economic activity is active or not can be grasped by indicators. In order to see the degree of activity, we first look at the absolute level. The amount of goods and services produced is the absolute level. In the economy, we value the value of goods and services created by the amount. It is interpreted that the production of 10 items of 10,000 yen produced value of 100,000 yen. In the production of 20 items of 1000 yen, it is the production of the value of 20,000 yen. Produced goods and services are sold and handed over to the purchaser. At that time the producer receives sales proceeds. Received proceeds will be reimbursed for payment to the supplier or wage payment to the workers. The supplier contractor will be re-expended for further payment to the supplier or wage payment to the workers. The remaining money is accumulated in the company or paid to shareholders. The value (added value) born by economic activity is the one subtracting the amount dedicated to purchase from sales. When this is repeated, it can be said that ultimately, all the value (sales proceeds) produced will be income of the company or household income (worker + shareholder). Income, some of which are used to purchase goods and services. The government collects taxes and uses that money to return to the enterprises and households as government spending.
To do the consumption you can not do without money. I need to work and get wage. Where does that wage come from? If it is a company, the money sold to the consumer is the source of the money. To do that, consumers must have money. To do that, work, ... and so on, the flow of money circulates in the economy. Do not know the origins of money originally. Money only makes owners turn around but in the meantime the value of goods and services is created. It is said that none are born, but the mechanism by which value is borne should be considered as follows.
I think about the world of barter with no money. Suppose you have a village where ten people live and you live on your own self-sufficiency. Suppose that everyone creates 10 kinds of things by each person due to labor. Some people make grains, some people make vegetables, others some clothes ... and so on. The item I made will barter a piece of nine people excluding his own consumption to one made by another person. Because we made ten individuals, we can barter with nine people. Then each person can own 10 kinds of things for one serving. The value (quantity of goods) born in this village is ten kinds of 10 people, but this was created by each person's labor. Production was born by input factors such as labor. If things that mediate barter money were money, money did not create value, but value was created by production activities. Money is just an intermediary.
Because economic activities are done on a daily basis, you will not be aware of the absolute level of activity. In terms of individual households and company level, by looking at the amount of money, you can intuitively understand how much activity you have by comparing it with the amount of money you can grasp on life experience such as consumption and salary. However, when this becomes the aggregate value at the national level, the amount is too large to pin it. So I will try to catch it with that change over absolute amount. Looking at the temporal change, even if you can not imagine the size, you can see whether the economic activity is getting bigger or smaller. The best way to see this is to look at the graph. If you look at the graph, not only the direction of change but also the degree of change, the range of variation, the periodicity etc. become obvious. Then, what kind of graph can you see the movement of the economy?
As stated earlier, economic activity at the national and world level can be caught by statistics. Therefore, to read the economy is to read economic statistics. To capture natural phenomena phenomena, we conduct nature observations and experiments. In the case of economy, however, human activities are the subject, so care must be taken in interpreting statistics. Except statistical values that can be expressed in monetary units, there are many exponential expressions. In this case, the absolute value has no meaning, only the temporal change of the value makes sense. Even if it can be expressed in monetary units, it can not be said that the value itself of the currency itself is universally absolute with respect to time. Therefore, attention will eventually go to change in value.
A typical indicator of the movement of the economy is an indicator to measure the movement of production, price, employment, market (money market). This is equivalent to GDP, price index, unemployment rate, stock price index, and so on. Among them, the most common is GDP (GDP). This represents how much value we produced in Japan in one year.
Economic activity is the activity that uses goods and machinery (capital) and labor power to create goods and services that are beneficial to people. The degree of this activity is measured by economic value, that is, monetary value. If a product is sold for 200,000 yen, that product has economic value of 200,000 yen for consumers. If the raw material cost of the product is 100,000 yen, if the thing with the value of 200,000 yen was produced by using the raw material of 100,000 yen, the value produced was 20 - 10 = 100,000 yen. Although this is the economic value created for one product, the total gross product (GDP) is the sum total of the economic value produced for all goods services provided to consumers in Japan. Because GDP represents the value generated in one year by the amount, in the case of Japan, yen becomes a unit. However, changes in the size of GDP are more noticeable than their absolute amounts. Looking at the time change of GDP, you can see whether the economic activity is getting bigger or smaller.
The time change of GDP is generally represented by the ratio of the previous year. This ratio is also called economic growth rate. In developed countries, it usually takes a value in the range of -3% to + 3%. If it is negative, it means that the scale of economic activity is decreasing, this is called economic recession. If it is positive, it means that the scale of economic activity is expanding, this is called economic expansion. Looking at the actual economic growth rate data over the long term, there is a period of the economic expansion phase, then it will be the period of the recession phase and it will cyclically change to become the expansion phase. If we look at the economic situation in two patterns of expansion and recession, it is natural that these two come alternately, but the important thing is that one state (expansion and retreat) never lasts forever It is that. The economy has the property of circulating.
There are various things and services, some of which may have increased in comparison with the past, while others may have dropped. Prices represent the average movement of the price of individual goods and services. As prices go up, unless household income changes, fewer items and services can be purchased. It will lead to a decline in living standards. Also, if the price rises sharply in the short term, if the value of goods and services does not change in the short term, it means that the value of the currency has declined. Given that economic activity is done in currency exchange, the decline in the value of the currency is a problem. Normally price high is a problem but in Japan the price down is a problem.
Whether it is a company or a government, it is an individual and a household that constitutes it. A household can not live without income. Whether households get stable income can be seen by the number of employees and the unemployment rate. If the unemployment rate gets higher, there is a possibility of causing social unrest. It is one of the indicators the government is paying attention.
Information on indicators priced in the financial market, such as stock price index, exchange rate, interest rate, land price etc. Market information tends to reflect changes in economic conditions immediately as the values of indicators change from moment to moment. There is also a tendency to reflect the future trend of the economic situation as soon as possible. With the movement of market information, you can read short-term changes in economic conditions and future expectations.
It is difficult to depict each activity, so usually you sample survey the whole country and describe the state of economic activity with the statistics. As statistical values, there are gross domestic product, price, unemployment rate, foreign exchange, stock index. Economics is to grasp the values and changes of these economic indices and to analyze the causes. However, the only thing I want to capture is not the statistical figures, but the human economic activities themselves, preceding the statistical figures. Statistics are only a means of grasping economic conditions. What is the purpose of grasping human economic activities? It is because as a result of economic activity people's living standards can be improved and enriched. Richness is mainly material wealth, but also spiritual wealth is involved. By enriching you can secure clothing, food and shelter, and live a culturally healthy life. By grasping the state of economic activity, finding and improving problems, we can enrich it. The purpose of economics is exactly here.
What do you get as a result of gathering and analyzing various economic data, making hypotheses (models) and verifying with actual measurement data? There are three main objectives of economics.
What is the purpose of measuring the state of the economy? It is to evaluate the state of the economy. Evaluate by looking at economic statistics, whether it is in the desired state or not. "Good economic condition" is not absolute because it concerns the viewer's values, but in general it is the following state.
Paying attention to changes in economic conditions, it is "good condition" that sustainable positive within a certain range is positive. What focused on the absolute level of statistics is
for example. The evaluation evaluates as to whether the current value is compared with the past value and whether the value of the country is compared with the foreign country and the international comparison. If we find that there is a difference between the reality and the ideal situation, the government will do economic policy and interfere with the economy so that it approaches even a little to the ideal state.
To bring the economic state closer to the ideal state, we take the following four approaches.
The first is economic statistics. It is important to obtain statistics that accurately grasp the economic reality. The second and third are analysis by economics. This is where economics comes in. The fourth is to implement the economic policy proposed by the analysis by economics. Government and municipalities implement.
From the economic statistics you can see the following. When the gross domestic product is expanding (economic boom), the unemployment rate declines, the stock price index and the land price are often rising. On the contrary, when the gross domestic product is decreasing (recession), the unemployment rate rises, the stock price index and the land price are often declining. Various economic indicators do not change to disjointed, but often move in conjunction. To be linked is causality and correlation between the two indicators. When ○ ○ rises, if you find the rule that ΔΔ decreases and □□ increases, you can learn the internal mechanism of the economy and predict future economic conditions. In economics, the purpose is to find the rule between economic indicators.
Economic indicators are expressed in absolute amounts, but if the unit amounts to 100 million yen, trillion yen, it is far from the real life feeling, it will not be a pin. However, since the economy is moving, we will focus on the direction of change over absolute amount. To grasp this, we look at the time series. It is obvious whether it is going up or down looking on the graph. However, this is a change in the past, and it is almost impossible to read until the future change. An international comparison is effective as another way of catching it. It compares with foreign countries, usually developed economies like Japan. Comparing the time trend with bigger or smaller, it becomes easier to understand. However, it is important to note that this is a relative comparison, so that what you compare does not represent the criteria. However, international comparison brings out the characteristic of Japan.
Economic statistics are more noticed than their absolute value due to the change. That is because the economy is changing all the time and whether the change is going in a desirable direction is necessary for each economic entity for consumption planning for households, business plan for companies, economic policy for governments Because it is information. The extent of change is often expressed in terms of the rate of change over the previous term, but caution is required when looking at long-term statistics. In the case of a decline in the previous fiscal year, the rate of change compared to the previous term tends to increase. When looking at graphs of the change rate over the previous year, let's also look at the time series graph of absolute values. In the case of comparison with foreign countries, there are differences in the method of determining exchange rates, social structure, and statistical methods when converting to monetary amounts, and caution is required for simple comparison.
Economic activity is done in mutual exchange between economic agents. Companies produce goods and services. Workers will receive wages. The company purchases (invests) or purchases (consumes) the goods and services produced by the company at a certain price level. In the financial market, stocks, interest rates, and foreign exchange move. As statistics related to companies, there are stocks, interest rates, and foreign exchange as statistics on wages, prices, consumption, financial markets, as statistics on production, labor, investment and households. Let's review the Japanese statistics.
Gross domestic product is the sum of the values of products produced during a certain period of time. You can see if the economic activity of the whole country is expanding. It is the nominal gross domestic product that represented by the summed up amount. It is real gross domestic product that excludes the influence of price fluctuation to this, and it is noticed that this person represents "true state". However, it is said that the nominal GDP is closer to the life expectancy, because the economic activity such as price, salary, company's sales, etc. is usually recognized as an amount.
Economy uses both nominal and real values. The scale of the economy is based on the amount (for example, yen) as a unit, but what I pay attention to is the amount of how much goods and services were produced. For example, 100 pieces of goods of 10,000 yen are produced. The production amount is 1 million yen. After one year, it is assumed that the price has risen to 11,000 yen. If the production volume is 100 pieces, the production value is 1.1 million yen. Even if the production volume does not change, the production value will rise by 10%. In order to see how many goods and services were produced in economic activities, it is necessary to compensate so as not to be affected by changes in the price of the products. Therefore, real gross domestic product (real GDP) represents the production amount by correcting the price increase against the production value.
The ratio of nominal GDP to real GDP is the GDP deflator. The GDP deflator usually takes about -3 to + 3%. This value represents price change (inflation rate) of goods and services produced in Japan. Along with the consumer price index, it is one of the indicators to measure price trends in the domestic economy.
The breakdown of gross domestic product consists of consumption, investment, government expenditure, trade balance (export - import). By looking at the breakdown, you can see which item change caused changes in gross domestic product. Gross domestic product (GDP) is the sum of the values generated by economic activities. GDP is the total of its breakdown (consumption + investment + government expenditure + trade balance (export - import)). There is a wave in economic activity, and GDP changes in time series. The breakdown also changes. The point of attention is the proportion of personal consumption to GDP and the ratio of imports and exports. Changes in private investment are also important. Personal consumption accounts for the highest percentage of GDP and the degree of influence is the largest item. Also, its absolute value is an indicator of the richness of the people's lives. Import / export represents the relationship with the international economy of that country. Export represents the productive capacity and economic growth of that country, and import represents the economic trends and purchasing power of that country. Private investment has a large temporal change and is closely related to economic growth and economic cycle. Temporal evolution can be taken with the emperor of the country's economic growth and the economic cycle, while comparing with other countries can see the economic development stage and features of the country.
GDP is the value of products produced throughout the country. People can consume the product, and can live a rich life. It is the individual that benefits from the value. So if you evaluate GDP per capita, you will get a number closer to your real life feeling. The per capita GDP, which divided real GDP by the population, will draw attention.
National income is derived from GDP minus mechanical wear and taxes. By drawing on mechanical wear and taxes, we get closer to the wealth created by the people. GDP is an indicator of domestically produced wealth, but from the perspective of the public, the wealth obtained from overseas will also be the income of the people. As overseas investment becomes active, it is necessary to consider income from overseas and income overseas by calculation of national income. So, as an economic indicator that takes it into consideration, there is GNI. Gross national product (GNI) = gross domestic product + income from overseas - It is calculated as income which flows out overseas.
I regard the whole country as one economic entity (for example, one company), and summarize the money that goes in and out of foreign countries there. As items, items such as export amount, receipt of income from overseas, exchange of foreign capital, import value as items for which the country pays money, transfer of income to overseas, capital overseas There are investment etc. The balance of payments is a monetary balance of money as a whole (like household account book), you can grasp economic relations with overseas and see the country's position in the international economy.
Households will provide labor to companies and receive wages. A certain portion of wages is purchased and consumed by companies and services created by companies. The portion of wages that did not go to consumption is saved. Accumulation of savings will be financial assets. Those that are not consumed by purchase but have asset value (cash value) are physical assets. Real estate, cars, etc. fall under. Households will decide their consumption based on the assets they currently own and the current and future wage income projections. Generally, as the total of assets and current and future wage income expectations increases, consumption will increase (asset effect). At that time, important information for households is present and future wage levels. Employment stability is a prerequisite. Therefore, wage level, asset price trend, unemployment rate will affect consumption. Savings are invested in corporate activities through financial institutions. Therefore, if the savings rate is high, corporate investment will be promoted and there is a possibility of contributing to the future economy. On the other hand, consumption is suppressed accordingly, so it will also restrain current corporate activities. The impact of both depends on the efficiency of investment with savings as the source and the efficiency of investment based on current corporate activity earnings. Improving labor skills is important to receive high wages. Labor skills contribute to corporate production activities through improvement of labor productivity. Consumption of durable goods tends to generate waves in consumption due to the influence of product attractiveness, price, lifetime of possessed items, etc. There are the following economic indicators that show the state of households.
As households are consumers, speaking of the situation of households, it is a grasp of actual consumption. We will focus on changes in expenditure by category such as changes in total monthly consumption expenditure, food expenses and entertainment expenses. Consumption is an item that accounts for 60% of GDP, and its change has a large impact on GDP. However, consumption as necessary for daily life is not influenced by changes in the economy as a property of consumption, so its linkage with economic cycling is low, and consumption is gradually increasing if long-term economic growth It tends to be. Consumption propensity to show how much spending has been spent on income tends to become smaller as income increases. In the opposite calculation, the ratio of savings to income is called the savings rate, and it is a marked index. In economic theory, because savings = investment, changes in savings rate not only represent changes in the situation of households but also changes in investment, changes in the economy as a whole. In addition to changes in individual households, the number of households, the number of consumers (population), and age composition also influence the size of consumption aggregated throughout the economy.
Corporate and government workers also belong to households. In other words, everyone has a household budget. Household income may be the most economical information for individuals. In the Family Income and Expenditure Monthly Report, income and expenditure are stated. It is statistics showing living standards and consumption trends. By looking at the breakdown of consumption, consumer markets can capture consumption trends.
There is retail sales as another statistic to look at consumption expenditure. Consumption is various, such as rent payment, education, medical care, but purchase of goods occupies a large weight in consumption. Retail sales is an important indicator for grasping the momentum of consumption and economic trends.
Consumers decide to purchase by price. Prices that represent the average level of goods and services greatly affect consumer living. Normally, inflation tends to be a state where inflation continues to rise, and grasping the degree of inflation is necessary information for stabilizing the economy. By measuring the degree of inflation, the government will try to control inflation with various economic policies if it is in high inflation.
Prices include a consumer price index that indexes price trends of goods and services (foodstuffs and clothing) that household consumers often buy, and goods and services (raw materials, etc.) that companies often purchase, There is a producer price index that indexed the price trend of China. For interpretation of statistics, it is common to see change in price index in comparison with the same month of the previous year. In developed countries, it usually takes a value in the range of -2% to + 3%.
Wage income is a flow for households, but assets are stocks. The main assets of households are financial assets and real estate which are the accumulation of deposits and savings in the past. As the market value of real estate and stock financial assets changes, the movement of asset prices brings about changes in household assets, and changes in consumption.
The company produces goods and services and provides them to households. For production, capital of labor and household equipment provided by households is necessary. For products, raw materials are also required. They are purchased using funds collected through proceeds from sales, borrowing, investment from investors. In other words, companies purchase raw materials, capital, and labor by purchasing sales revenue, borrowing and investment from investors, producing goods and services and providing them to consumers. Companies sell goods and services and sell goods and services and collect expenses after they procure production factors, so they are expected to produce, resulting in a wave of worsening performance improvement and eventual waves of economic conditions. As with consumers, capital investment is the purchase of goods and services by enterprises, and their size greatly affects the entire economy. Technology accumulates through learning through capital investment, research and development, production activities, raising production efficiency, innovating goods and services, and driving the economic growth. Important information by companies is household consumption trends, fund procurement costs such as interest rates, raw material prices and labor cost levels. The following are the economic indicators that represent the state of the company.
The industrial production index is an index of the quantity of goods produced domestically. You can see whether the production is expanding or shrinking due to the change in the number. In Japan, the manufacturing industry is the core industry, and the movement of this index is an important indicator of the situation of the domestic economy. The timing of production and sales does not necessarily agree. If production is expanding, it is expected that sales will be correspondingly expanded, which suggests an expansion of GDP. Capacity utilization rate is an indicator showing how much existing facilities are used for production activities. If the facility operating rate is high, it is close to full production, and conversely low means that existing facilities are idle resources too much. The capacity utilization rate not only represents the degree of production activity but also the extent of excess or shortage of production facilities. Higher equipment availability will encourage new investment. On the other hand, if it is low, it means that you have excess equipment and it will be a factor to curb investment.
In the manufacturing industry, once manufactured it is once stored (inventory) and sold. The time series of production and the time series of sales have deviation, and stocks function to absorb the deviation. When sales are less than production, inventory increases, and stocks decrease when there are more sales than production. Looking at the temporal change in inventory, you can capture the time change of production and sales. Inventory index is the sum total of inventory changes of individual companies in the whole country. The inventory index is an important indicator to see the cycle of the economy. Generally, inventory index will decline as sales recover during the economic recovery period and stocks accumulated will decrease. In the recession period, inventory index will rise because sales will decrease and inventory will increase. The inventory index will increase or decrease according to economic movements.
The company will invest capital investment to expand business, increase production capacity, and update existing facilities. Investment is a component of GDP, the magnitude of the investment will directly affect GDP. Investment tends to increase as corporate business expectations increase and decreases in the opposite case. We are strongly influenced by the economy. Also, changes in investment have a major impact on GDP and the economy. Investment not only increases production but also improves productivity (being able to produce more high value added products at lower cost and more) by introducing the latest equipment. Investment is different from consumption, and the increase in investment not only boosts GDP at that time but also plays a positive role in production activities since that time.
Investment is the purchase of goods and services that companies conduct, not only affecting the performance of their producers, but also investment will influence the expansion of future corporate activities and the growth of the economy as a whole. Private capital investment is one of the components to calculate Gross Domestic Product, and you can see the change in investment as a breakdown of gross domestic product. Unlike consumption and government expenditure, which are other components of gross domestic product, fluctuation is large and linked with economic cycle. Changes in private capital investment are affecting the gross domestic product, that is, the Japanese economy.
The effect of investment is to improve future productivity. Capital stock represents the accumulation of past investment in the economy as a whole. Economic theory states that added value (gross domestic product) will be produced by the amount of capital stock and labor input. An increase in capital stock can be said to be a condition for economic growth.
Companies regularly have performance announcements. By notifying the results, we can not only grasp changes in sales and profits of individual companies, but also when we look at the performance of major companies, we can infer the performance trend of the entire enterprise. In addition to individual corporate data, the Bank of Japan's business confidence survey "Bank of Japan Tankan" and government statistics "corporate enterprise statistics" are also helpful. Corporate performance is reflected in stock prices. The stock price index reflects the performance of the entire company.
The producer price index is an index of the prices of goods and services sold for companies, not consumers. We will show price trends of intercompany transactions which make up an important position in economic activities. The characteristic is that it reacts more sensitively to the economic trend than the consumer price index and changes greatly. It is an important indicator to explore business trends of companies.
Labor statistics are corporate statistics to show employment situation of companies. In addition, households earn income for consumption by employment, so it is also statistics of households. Households will receive wages as compensation for labor and will then consume. Employment information is of great concern to households. There are various economic statistics on labor, such as population, population of productive age, workforce population, number of employed people, number of employees, unemployment rate, effective job openings ratio, employee compensation. Changes in time over absolute numbers are noted in economics in any statistic.
The population is the basic data that shows the economic power of the country. The population can be interpreted as it is as a consumer number, and the increase or decrease in the population directly connects to the increase and decrease of consumer demand, increase and decrease of consumption. Economically, if the population gradually increases, you can expect stable growth. The sudden increase is problematic in terms of economy because absorption capacity of employment can not keep up with it, it tends to increase poverty. There are many cases that apply to developing countries. On the other hand, stagnation and declines in population growth will cause stagnation in consumption demand, which will hamper economic growth. The production age population represents the number of people who can engage in production activities and in Japan means the population of men and women from 15 to 65 years old. It simply represents the number separated by age, so it does not matter whether you are engaged in labor or willingness to work. It is influenced not only by changes in the population but also by changes in the age composition of the population.
We call the number of people who intend to work (number of employed persons + number of unemployed persons) as labor force. It is a potential labor input. The labor force population is influenced by the population and the age of production age, but rather it will increase or decrease depending on people's way of thinking about labor, the environment, and economic trends. The ratio between the productive age population and the working population is called the labor participation rate.
The number of employed people is the number of people actually engaged in labor, the sum of the number of self employed and the number of employees. It is affected by the economy. Since the number of employees is more influenced by the economy, it will draw attention as economic statistics. Employment hires people if employment activities expand, increases the number, and if corporate activity stagnates, employment will decrease due to reduction of personnel expenses. The change in the number of employees is not as stretched as in foreign countries, but the change in the number of employees represents a change in the economy. Because the number of employees is also the number of people receiving wages, it also affects household income and consumption trends.
The unemployment rate is the ratio of the labor force population to the number of unemployed people. The unemployment rate is not only an economic problem but also a political and social problem, it is an indicator of the economy and at the same time economic policy is an index of attention. The unemployment rate is also one of the statistics to see the state of the economy. The unemployment rate increases during the economic recession. Comparison of the unemployment rate with the past is meaningful, but in comparison with foreign countries, simple comparison can not be made by different employment circumstances and statistical methods in different countries. The unemployment rate is due to the unemployment rate changing due to changes in job seekers as the "job seeker but a person who can not go to work" comes. The effective job offering ratio is the ratio of the number of people wanted to work and the number of job offers for companies. It is an indicator of the degree of corporate demand for human resources because the change in the number of job offers for companies is more severe than the change in job seekers. It affects the economy.
Changes in remuneration amount are affected by the economy. Changes in wages lead to changes in consumption through changes in household income. Consumption affects the economy as a whole (GDP).
The numerical value of the financial market which is priced every moment in the market tells the current state of the economy in real time. It is said that the stock price index moves ahead of the economic trend for about half a year. If stock prices seem to have declined sharply, we are expecting a recession in the economic situation after that.
Changes in foreign exchange affect exports and imports. When the yen rises against foreign currencies, imported goods become cheaper, imports increase, export goods become higher and export is suppressed. Japan imports raw materials and energy. Exports are mainly industrial products. Both relate to the central industry of the Japanese economy, domestic production activities will move due to the movement of foreign exchange, which will cause the economy to be affected.
Movements in interest rates in financial markets, as it is, affect the interest rate of the loan for the company and the deposit interest rate for the household. Generally, as interest rates increase, lenders are suppressed, eventually becoming a power to suppress the economy. Conversely, if the interest rate declines, lending will be promoted, the flow of investment and money will increase, stimulating the economy.
As a property of investment, there is a relationship with interest rates. Investment is often done by borrowing, and investment is suppressed when interest rate, which is borrowing cost, increases. On the other hand, investment will be promoted as the interest rate falls. In theory this is the case, but the reality is not necessarily clear relationship. In general, interest rates will rise and investment will be restrained when the economy is in good economy, but at the same time, if the economy is good, business expectations will increase and this will also be an expansion factor for investment. On the other hand, when the economy is in recession, the interest rate will be low and stimulate investment, but business expectation will decline and it will be a factor in restraining investment. Both of these factors are added in opposite directions, and the relationship between investment and interest rates is not clear.
As seen as an economic entity, the government itself has the role of controlling the national economy as a whole in a desirable state by doing its own economic activities. As functions of the government, there are (1) a function to create demand to enterprises by government expenditure, (2) a redistribution function to collect taxes from households and companies from taxes and return it to households and companies by government expenditure, (3) stable economic growth and structure It is a function that influences economic activities of households and companies by economic policies aimed at reform.
One of the important functions of the government is taxation. We will collect taxes from households and companies to do government expenditure. How much tax you collect from households and companies is one of the means of controlling the economy. For tax collectors, it is generally thought that less tax is better, but if tax revenues are small, government control, administrative services, and economic control will decline due to government expenditure. Tax revenue and expenditure are a unified relationship, and even if you can not increase the tax revenue, you can control the economy depending on to what extent taxes are collected.
Economic activities are carried out mainly by households and enterprises in the production and consumption of goods and services, but maintaining the desirable state as a whole country by controlling its activities is an important role of the government is. Maintaining a desirable state means (1) maintaining a fair and fair competitive environment, (2) stable economic growth with reduced wave of economic recession, (3) maintenance of low unemployment rate, low inflation, (4) improvement of people's lives, Public investment aimed at the improvement of capital, ⑤ support of economic activities of households and companies, etc. According to economic policy, the government will support and in some cases suppress the economic activities of households and companies. As specific policy measures, (1) fiscal policy: a function that generates demand by purchasing (government expenditure) the goods and services produced by companies. (2) Monetary policy: By increasing / decreasing the amount of currency supply to the world, by increasing or decreasing the amount of currency supplied to the society, consumer prices and companies (3) Industry policy: The function to stimulate the industry and lead to economic growth by relaxing subsidies, low interest loans, investment, and economic regulation in specific areas, etc.
Economic conditions can be read from various statistics, but will the economic indicators obtained by the statistics move separately from each other? It is said that there is a causal relationship and correlation between economic indicators. If you understand this relationship, you can explain why you do such a movement. In addition, it can estimate the economic condition that can not be measured, and predict the future state based on the current value. To do this kind of analysis, model the economy based on economic theory, match the analysis result with the measured economic data, verify the model, and build a model to explain the truth. Economic theory pursues a model that explains economic conditions while repeating hypothesis (modeling), analysis, and verification with measured data. Economic theory is finding out the universal principle working on the economic activities of that country.
In economic theory, we simplify (model) leaving only essential parts from real complex economic activities, and then unlock the mechanisms that lurk within that model. Usually, formulas use formulas. By expressing it in mathematical formulas, we can simplify and rigorize the real world. Once it can be represented by a mathematical expression, mathematical calculation can then be used to calculate the relationships between economic variables and the values of economic variables, predictive analysis of how another economic variable will work by moving certain economic variables ) Becomes possible. By doing so, we can make policy recommendations to the real economy from the policy analysis that if you do some economic policy, the economy will be like this. Although individual economic activities are varied, analysis results in economic theory can be applied to various real economic activities (versatility) because it simplifies and focuses on the characteristics common to various economic activities . In this way, economic theory can analyze the real world economy by economic theory, and again bring the result to the real world economic direction better.
For economic analysis, economic theory serves as a tool. Analysis tools are economic models, supply and demand, rational behavior. The economic model incorporates several economic indicators as variables into formulas. Expressions are clear because relations between economic indicators are formulated as mathematical expressions. For example, Y = 2X + 5. Supply and demand are the idea that economic activity has all producers and recipients, economic transactions are established at the same level. The supply and demand of goods and services is the value realized at the intersection of demand curve and supply curve. Usually, only intersections are observable, and we estimate the movement of demand and supply from intersection movement. Rational behavior means that the hypothesis is that the economy is a human being and it is unpredictable if you pay attention to individuals, but in the average nature of the group it will take a certain patterned action based on rationality It is a way of thinking that reads causal relation by how people who behave based on standing and loss calculation respond to economic movements.
When trying to find a relationship between economic indicators, we will judge whether there is a causal relationship and no correlation. A causal relationship exists when another indicator changes necessarily due to a change in one index. This is because if the scale of the indicator differs greatly between indices, small scale indicators are influenced by large scale indicator change, there are temporal differences between the two indicators. Suppose there is a correlation when a change in one indicator and another change in the indicator occur at the same time and it is not possible to determine which one is the cause due to which one. It is important to distinguish between causality and correlation.
In economics, decision-making entities in economic activities such as companies, investors, and consumers are assumed to take reasonable actions. Rational action is to consider all options when choosing a decision under given conditions and choose the option to maximize your own profit. Unlike the laws of natural science, human behavior is not always based on rules that are legal. Sometimes the behavior is determined by the emotions of that time. In other words, human behavior can not be predicted. However, with the assumption "reasonably making decisions", we can derive what kind of decision making will be made by calculation. It is possible to analyze the decision of the economic entity based on the theory. Depending on their personality, individuals' individuals may have different decisions even under the same given conditions. However, if we observe the behavior of the human group statistically, we can assume that the individual differences of individuals are offset and on average they converge to reasonable behavior. Therefore, if you aim to analyze the overall trend rather than focusing on individuals, you can assume that you take reasonable decision-making. By this assumption, in economics, various mathematical models were devised, and a method to predict and analyze economic behavior was established by finding decision variables that maximize profit on mathematical expression.
Economic activity is precisely to produce goods and services and consume it. It may be used for further production as an investment without consumption. As a seller, producers of goods and services will trade goods and services in the market with buyers who are considering consumption and investment. Sellers supply so that buyers demand and meet their demand. The volume and price to be traded are determined by buyer demand amount and seller supply amount. When the buyer wishes to buy 10 pieces at 1000 yen, when the seller wants to sell 10 pieces at 1000 yen, a transaction with a price of 1000 yen and a production sales amount of 10 pieces is established. Both the seller and the buyer consider a market in which individual behavior does not affect price formation in the market. Normally most markets and services markets apply. Given the market price, producer companies who are sellers want to produce and sell a lot as the price increases. Meanwhile, consumers and businesses that are buyers have budget restrictions, and the higher the price, the more they will not buy it or buy a little.
Supply and demand can be thought of as a function of price. This can be expressed as Q1 = S (P) Q2 = D (P) . Trading is established only when the transaction price and the transaction quantity match with the seller and the buyer. This is easy to understand when represented in a graph. Take the quantity on the horizontal axis and price on the vertical axis and draw the supply function and the demand function. If there is an intersection of the graph, that point is where the hope of the seller and the buyer match. Intersection points represent market price, production sales quantity. When the demand increases or decreases (the graph of the demand function moves left and right), the intersection moves. Likewise, the intersection moves even if the supply increases or decreases (the graph of the supply function moves to the left or right). Price and quantity are determined by interaction of supply and demand. This is called the equilibrium point.
Employment and wages of workers can also be grasped by demand and supply. We draw a graph of the labor supply amount of households and the labor demand amount of the enterprise on the horizontal axis, the wage (price) on the vertical axis and the wage as a function of wages respectively. Labor supply volume increases as wage increases. On the other hand, labor demand decreases as wages increase. The intersection of the graph is the wage level and the amount of employment realized.
If you regard money as a thing, you can think of supply and demand for money as well. The supply of money is the lender, and the demand for money is the borrower. It is natural to think that demand for money will increase as the economy scale rises. If the borrower's demand for funds increases, the interest rate, which is the "price" to borrow money, will rise. It is also natural to think that demand will decrease if interest rates rise. On the supply side, if economic activity becomes active, households and companies will receive more money and supply to financial investment will increase. It is natural to think that supply will increase if interest rates rise. If the lender's funds hit, the supply of funds will increase and the interest rate will decline. At the intersection of demand curve and supply curve, market interest rate and loan amount are determined. This mechanism also works in the stock market. The seller's supply curve of the stock and the demand curve of the buyer change from moment to moment. The position of the intersection also changes as the curve changes.
There is a balance between demand and supply also in the amount of money itself. Money is supplied by the central bank. Consumers are companies that use money and households. The amount of currency on the horizontal axis and the interest on the vertical axis, draw supply functions and demand functions. As the central bank regulates supply volumes by policy, it is a constant M for interest rates and it is a vertical line on the coordinates. For companies and households that are consumers, the lower the interest rate, the higher the demand for using money. This can be formulated as L (r, Y) . L (r, Y) = M is the equilibrium point. This is also a relational expression of r and Y , and the rise of Y is accompanied by an increase of r . In this relation, Y on the horizontal axis and r on the vertical axis and draw it as an LM graph. On the other hand, r and r with Y = C (Y) + S (Y) = C (Y) + I Paying attention to the relationship of Y , the equilibrium value Y increases as the r decreases. Write this as an IS graph in the coordinates. The IS graph and the LM graph intersect in one place. This equilibrium point is the realized interest rate r and production level Y .
Suppose that the intersection of the decision-making curves of the seller and the buyer, which are the two main entities of economic activity, is the price or quantity realized in the market, the concept of supply and demand is based on the product market, financial market, labor market It will be an analysis tool of many market movements such as. Based on this model, the market transaction actually to be realized is the price and transaction volume at the equilibrium point, and what is observed in the actual market is the price and quantity at the time of the transaction establishment. Even though the equilibrium point can be measured, the demand curve or supply curve that provides the equilibrium point can not be observed. When price and quantity change, it can be inferred that the demand curve and supply curve have changed, but if both curves change, decomposing the movement of the equilibrium point into the movement of the demand curve and the supply curve It is not easy. Assuming that one curve is fixed, the movement of the equilibrium point will be along the shape of the other curve. Actually, such a premise can not be made. Therefore, modeling and analysis using observable im- age curves and supply curves have limitations.
The relationship between supply and demand can be thought of not only for individual things and services, but also for collecting various things and services of the world and considering it as one thing. We will grasp the demand and supply of various things and services of the world by aggregate demand and aggregate supply of one thing. As prices of various goods and services rise on average, consumer demand will decline. On the other hand, the supply of producers will decline if prices of various goods and services fall on average. If you draw a demand curve and a supply curve against the average price level (price level) of various goods and services, the intersection point is the average price level (price level) that actually appears and production consumption. The aggregate production consumption can be thought of as GDP and expresses the relationship between price level and GDP.
Demand and supply are constantly changing. As the point of equilibrium between supply and demand is price and production sales volume, changes in the intersection of aggregate demand and aggregate supply will cause changes in inflation rate and production level. If both production and price are flexible, the movement of the intersection will be the new equilibrium point as it is. However, if one considers either production volume or price to be rigid, the result of the change will also be different. Assuming the price is rigid, the change in supply and demand changes the production volume rather than the price. Conversely, assuming that the production volume is rigid, changes in supply and demand change the price. These two perspectives create different views on the effects of economic policy. Suppose that fiscal stimulus creates new demand at the government side and shifts the aggregate demand curve upward. In view that the price seems to be rigid, it will not be inflation, the production will increase and the economy will expand. In terms of the view that production is considered rigid, production will not increase much and the economy will not expand and inflation will occur.
The first step in modeling the economy is about gross domestic product. The consumption function assumes that a certain percentage of disposable income (tax deducted from gross domestic product) goes to consumption. We know that it is largely established by past statistical analysis. (Unlike natural science, economic studies model human activities, so arbitrariness of the definition of statistics, error of statistical data, because human beings themselves do not behave regularly like natural laws in the first place If the model (hypothesis) does not conflict with the measured data, it is interpreted as a valid hypothesis.) In the expression, C = a (Y - T) + c where C T : Tax, a : Consumption Factor, c : Consumption, Y >: It is a constant term. "Import function" is a formulation based on the hypothesis that import volume is proportional to economic scale. IN : import price, Y : gross domestic product, Y var> b : Import coefficient. Corporate investment will change according to interest rate level. Investment can be expressed as a function of interest rate. Y = C (Y) + I (r) + G + EX - IM (r) when substituting these for the definition formula of GDP in the equation Y = C + I + G + EX - IM (Y) . On the other hand, from Y = C (Y) + S (Y) , The relation of EX - IM (Y) = S (Y) - I (r) - G is derived.
Y = C + I + G + FX - FI C = c Y S = Y - C I = I (r) L = L (Y, r) L = M K = M / Y K t = K t - 1 + I t - D t
The formula of macro economy is an identity, and the other does not represent the result due to either the right side or the left side. In this example, if the trade surplus becomes surplus, it does not mean that the difference between savings and domestic investment spreads, trade surplus will expand if domestic investment is less than savings. Savings, domestic investment, exports, imports are measured respectively, and the left side and the right side match from the official.
The gross domestic product is represented by the following formulas for the demand side, the supply side, and the distribution side, respectively. The value is the same thing which sees the breakdown of the same thing (the economic value created by domestic economic activity) from a different viewpoint. First of all, what we saw in the expenditure item is Y = C + I + G + EM - IM . What you see on the income side is Y = R + W + T . Consumption C can be expressed as C (Y) if it is determined by domestic economic scale. Investment is influenced by interest rate Interest rate function I (r) , for export EM at exchange rate e , import IM will be EM (e) , IM (Y, e) if it is decided according to the exchange rate and domestic economic scale. The expression is Y = C (Y) + I (r) + G + EM (e) - IM (Y, e) . If Y is focused on Y, the level of Y satisfying the formula can be obtained. S S is Y - C (Y) and S - I (r) = G + EM (e) - IM (Y, e) . EM (e) - IM (Y, e) is the trade balance, and the difference between savings and domestic investment is the trade balance.
In the model, various variables are combined in relational expressions. The relational expression is also a constraint condition of each variable. When other variables are decided, the one whose value is determined by the relational expression is called an endogenous variable. On the other hand, variables whose numbers are determined independently of other variables are called exogenous variables. What is an endogenous variable and what is an exogenous variable is not determined from the beginning but an exogenous variable, a variable that is rigid (one less susceptible to influence from other variables) It can be thought of as a raw variable. In the macro model described above, in general, export, investment, foreign exchange are interpreted as exogenous variables, income, and import as endogenous variables. When exports, that is, overseas demand, interest rate regulating investment, exchange rate are given given, income and import are determined from the calculation of the model. Income will fluctuate with a booming economy, depressed economy, but that will be brought about by the exogenous variable export, foreign demand or exchange rate. But, in fact, as incomes and investments change, exports and exchange rates can change as well. What is an endogenous variable and what is considered as an exogenous variable makes a difference in the interpretation of the causal relationship of the economy (another economic indicator changes due to a change in one economic indicator).
Modeling and analysis of macro economy is used for planning economic policy and analyzing its effect. In the real economy, it is desirable that the economy continues to grow steadily and continuously, but even in the past history, it can not continue to grow steadily and sustainably, and the economic growth (economic growth period) and economic recession (Growth retardation period) is repeated. In the real economy it is impossible to control the inflation and unemployment that can be a social problem that can not grow the economy, there is a problem in fairness and equality with regard to the distribution of wealth of the economy even in the growth process of the economy Economic problems such as difference and expansion of poverty will occur. The government will try to control to the desired state by doing economic policy and working on the real economy. Although there are various arguments in the economically desirable state, it is generally agreed that there are three categories: (1) stable sustained growth, (2) low inflation, and (3) low unemployment rate.
Growth increases wealth, and wealth distribution may increase individual wealth. Expansion of production will increase workers, lower unemployment rate, increase consumption by raising wages. Expansion of consumption increases people's utility. It is desirable if high growth of the economy is sustainable, but the possibility of economic recession due to economic overheating etc. will increase, so it is desirable to have a moderate, stable and sustainable growth.
Inflation is to raise the price of goods, but if you change your perspective, it means that the value of money will go down against things. The currency is issued by the government, the currency itself does not bring utility. The currency can be used for economic activity by its credit. Low inflation is desirable because high inflation not only lowers the value of the currency, but also large fluctuations in the price cause confusion in the economic transaction negotiated by the price.
Employment is directly linked to household income, great influence on people's lives, people's interest is also high. The most representative index of employment situation is the unemployment rate. The high unemployment rate not only leads to a decline in household income and suppression of consumption, but also invites dissatisfaction with the government and an increase in social unrest.
Economic policy is an act of encouraging the economy to utilize the resources and authority of the government in order for the government to bring its economic state closer to the desired state. Generally, the economic cycle of economic recession will occur, so in order to prevent overheating and stagnation, take economic stimulus measures during recession and control measures during booming times. The purpose of economic policy is as follows.
Economic policy is an act of encouraging the economy using government resources (national budget, central bank's funds, etc.) and authority (licensing and approval system, tax system, law etc.), mainly mainly fiscal policy, monetary policy, There are three regulatory reforms.
Fiscal policy is to change government expenditure, stimulate or suppress the economy. Government expenditure is purchasing goods and services produced by enterprises in the order of the government, so it is difficult for companies and households who have increased their incomes by handling money to households through wages paid by companies that are the main expenditure destination or companies, Increasing investment and consumption will further stimulate the economy. Government expenditure is an item of GDP. An increase in government expenditure not only directly leads to an increase in the country's production but also stimulates investment and consumption by ripple effect and increases GDP beyond government spending increment. This is called a multiplier effect. In recession, we will increase government expenditure as a fiscal policy and stimulate the economy. On the other hand, if government spending is reduced, private sector income will decrease. When the economy overheats, it reduces government expenditure by fiscal policy and suppresses overheating. Public investment is utilized in terms of immediate effect on economic stimulus and maintenance of employment. Besides increasing expenditure, stimulating the economy is tax reduction. By reducing taxes, the remaining money (disposable income etc.) in companies and households will increase, which will increase investment and consumption.
If you do fiscal policy, you can expect the following effects.
Suppose the government spends 1 million yen on economic policy. As demand of 1 million yen occurred, private sector will produce 1 million yen to meet the demand. The economic effect here is 1 million yen. If 1 million yen received by the private sector from the government is directly subjected to "tansu deposit", the effect is over at 1 million yen. However, if consumption and investment are carried out using this income (1 million yen), demand for that part will occur, production will be done and constant production will be recorded. Furthermore, the private sector which received the price will use part of the price for consumption and investment, so further the stimulus effect will be propagated in many directions. If the ratio of consumption to investment to income is 0.9, the total ripple effect will be the sum of the infinite series with the initial value of 1 million yen and the common ratio of 0.9. This is called a multiplier, usually a value from 1 to 3. Government expenditure is collected by tax, so it can not be said that even if private consumption raises 1 million yen and government expenditure increases private income by 1 million yen, it will not be effective. However, if the multiplier effect works, it will be collected by 1 million yen tax, the government expenditure will be increased by 1 million yen, if the income of the country is increased by 2 million yen due to the multiplier effect, it will stimulate the economy.
Government expenditure will not only increase direct GDP but also influence GDP beyond expenditure not only by direct GDP definition but also by multiplier effect if it grows. Therefore, in the past, when the economy was in recession aggressive fiscal expenditure was done. Fiscal policy is to suppress expenditure expansion in recession and reduce expenditure by reducing spending in booming times. In fact, however, once expanding the fiscal expenditure, even if the economy improves, spending will be less likely to decrease due to fears that a recession will occur if the spending is reduced here, and tax revenues will also increase during the booming period, so expenditure will also increase Without being reduced, the result was a further increase in expenditure as the recession came. Countries with low economic growth, such as developed countries, also increased government expenditures to escape the low growth situation. Government expenditure as an economic policy was based on the multiplier effect, but the multiplier effect was not obtained endlessly, the multiplier itself declined and the effect on economic growth weakened. As a result, excessive expenditure on income has become normal, and financial crisis is beginning to be concerned. The problem of fiscal policy is that although tax revenues are declining at the time of recession and increasing during a booming period, even though it is reasonably expanding expenditure in recession and reducing expenditure in booming time, democracy receiving policy evaluation in election In the nation, expenditure can not be reduced even during a booming economy, and expenditure will only increase in an unexpected recession (economic depression usually happens unexpectedly), the cumulative deficit will increase. Economics as well, economic policies that rely on fiscal finance have not only inflated the fiscal deficit but also created many theories claiming economic policy has no effect. One of them is that economic agents (households, enterprises) act not only in the present situation but also in future anticipated circumstances. If we do debt and expand the fiscal, if we anticipate that in the future we expect to raise taxes or reduce the fiscal size to compensate for the debt, the current fiscal expansion will not stimulate investment and consumption.
In developed countries where low growth continues, as a result of economic recession due to fiscal policy became normal, it began to have a large budget deficit. Also in developing countries, expenditures have been inflated more than income to grow the economy, so the number of countries that have budget deficits throughout the world has also increased. It is necessary to restore the financial condition by cutting expenditure, but if we reduce expenditure, we will not only reduce direct GDP but also cause the economy to stagnate with a negative multiplier effect. If the economy stagnates, tax revenues will be less, so we will have a question mark on the initial objective of fiscal health. Fiscal consolidation will be necessary for stable growth of the economy in the long term, but if you cut down on spending abruptly, it will be negative to the economy. To grow the economy and to make the financial sound healthy, in the short term it will be either a choice. Fiscal discipline inspectors assert that if the fiscal position is sound, economic stability will be aimed, fiscal expenditure in the future recession will be easier and consequently will lead to economic growth, while economic growth theorists will argue that economic If we promote growth, tax revenues will increase, and as a result we will assert that financial soundness will be aimed at. I can not find a way to grow the economy while trying to improve fiscal soundness and still find effective strategies in economics.
Monetary policy is a policy implemented by central banks, mainly adjustment of market interest rate, adjustment of currency supply amount, regulation of banks, foreign exchange intervention, etc. Bank regulations, if you strengthen regulations, will be lent out and prevent overheating of the economy. Foreign exchange intervention controls foreign exchange movements to prevent sudden exchange rate fluctuations.
The best policy is to adjust the market interest rate. It is to intervene in the market where the financial institution lends and withdraws funds (on the information system connecting the financial institution without the physical substance even if it is called the market) and controlling the short term interest rate. Market interest rates range from short to long, but short-term interest rates and long-term interest rates do not move apart, but if you control short-term interest rates, you can indirectly induce long-term interest rates. Lowering the interest rate will make it easier to lend out, the loaned money will increase the investment of the company, consumption by consumers. That is to stimulate the economy. On the contrary, as interest rates rise, lending is suppressed, investment and consumption are reduced, and the economy is suppressed. For stable growth of the economy, it is necessary to control excessive vertical movements of the economy and stabilize prices. The central bank will implement monetary policy aimed at stabilizing the economy, stabilizing employment, and stabilizing prices. However, it depends on the country whether to emphasize economy, employment, or price. In times of recession, we will lower interest rates to stimulate the economy and boost interest rates during booming periods to prevent overheating of the economy. The problem with interest rate policy is that the effect of tightening (rate hike) is large, but the effect of mitigation (rate cut) is weak. In addition, the liquidity of investment and funds is influenced not only by the absolute value (return) of interest but also by risk. In the environment where the risk fluctuates, the effect of the change in the interest rate is not demonstrated.
Traditionally, adjustment of market interest rates was central to monetary policy. Since the interest rate can not be less than zero, if the interest rate drops to near zero, we can not stimulate the economy by lowering the interest rate any more. Therefore, adjustment of the currency supply amount has become more important as monetary policy as the next stage. It is called quantitative easing and we will supply money to financial institutions by loaning long-term funds to financial institutions at low interest rates or buying government bonds owned by financial institutions. In financial institutions money is rewarded to the economy through lending to the company, and the economy is stimulated. In addition, increasing the money circulating in the economy means that the amount of money increases with respect to the amount of goods and labor, which means that the value of money decreases relative to goods and labor, and the possibility of inflation Yes.
By inducing short-term interest rates, usually called policy interest rates, in the interbank market, we will induce short-term interest rates, long-term interest rates linked thereto, and loan interest rates in a desirable direction. However, when the policy interest rate becomes near zero, this We can not induce low interest rates above. Currently, in developed countries, the policy interest rate is near zero. Interest rates tend to rise as the remaining period gets longer. In order to lower the long-term interest rate even further, we will induce a decline in interest rates by directly working on the medium- and long-term interest rates of government bonds, not policy rates in the vicinity of zero. Specifically, the central bank will purchase a large amount of government bonds in the interbank market and lead the government bond price high. The higher the government bond price, the lower the interest rate. "To purchase" means to absorb the government bonds from the market and supply cash issued by the central bank to the market. This is to increase cash on the market and is called quantitative easing. The effects of quantitative easing are: (1) stimulation of investment by lowering long-term interest rates, (2) induction of inflation due to increase in cash distribution volume, and decline in exchange rate. In Japan, economic stagnation, deflation, the appreciation of the yen continues, and quantitative easing can be said to be an effective policy choice. Monetary policy was focused on policies that control interest rates, but due to quantitative easing, policies to control money supply have also been added. Both of them affect economic growth, price index, exchange rate. Both can be said to raise or lower the value of money. Quantitative easing is a policy that absorbs liquid assets (government bonds, etc.) from the market and supplies highly liquid assets (cash etc.) to the market. Since declining interest rates can also be said to be liquidity supply in the market, controlling monetary policy is monetary policy.
The central bank manages the currency. Cash is grasping the issue volume of bank notes and coins. Cash other than cash (deposits, savings etc.) is grasped through financial institutions. This is called money stock and you can predict economic trends and inflation trends by managing the amount of currency circulating around the world. Comparing the amount of currency with nominal GDP, you can see that there is a positive correlation. The Bank of Japan Tickets Issuance High + the current account balance at the Bank is called the monetary base. One of the theories is that inflation is determined by the amount of currency supply such as money stock and monetary base.
In general, central banks implement monetary policy with the objective of low inflation and maintaining order in the financial system. In the United States, in addition to low inflation and maintenance of the order of the financial system, low unemployment rate is also aimed. In Europe, in addition to maintaining low inflation and the order of the financial system, there is a movement to aim for stable growth (nominal GDP growth rate) as well. Meanwhile, in Japan, low inflation and the maintenance of the order of the financial system have been the goals of the past, but as the deflationary economy is prolonged, it is becoming a target of monetary policy to devalue from deflation and lower inflation I will. If there is only one goal, the policy is easy to select, but choosing a policy is not easy if you follow two or more goals. In particular, it can be said that low inflation and low unemployment rate, low inflation and stable growth (nominal GDP growth rate) are easy to judge whether to stimulate the economy or contrarily suppressed.
Each country has a central bank. What is the difference between a bank and a central bank? The bank receives money from the depositor and lends it to the company. The central bank may deposit money from the bank and lend it to the bank. The first role is to be a banking customer. There is a private bank account at the central bank, and the bank deposits more than a certain amount, which is designated as reserve by rule, at the central bank. If you raise the reserve, the banks will have to forcibly deposit money in the central bank, while conversely the less money will be available to the private sector. The second role is monetary policy, intervention in the interbank money markets and operation to keep the market interest rate constant. The central bank establishes the target interest rate and funds the market or absorbs it so that it is maintained. The third role is to issue currency. In Japan, I issue bank notes as a Bank of Japan ticket. Issuance will be provided by purchasing assets such as government bonds from financial institutions by Bank of Japan tickets and selling the assets of the Bank to the banks to absorb the funds. In this way, the central bank manages the market interest rate and the amount of money circulating in the private sector. By doing so, we are controlling the value of the currency, controlling prices and adjusting the economy.
The currency is in possession by someone. Some of them are in sleeping state without purpose of use. For example, households' tans deposits, corporate savings that do not go through investment, bank deposits that do not go to lending. Money spent on investment and consumption goes to the hands of others and goes further to investment and consumption. For borrowers, the borrower should have a purpose of use, so we will turn to investment and consumption. In the calculation of currency supply amount, the relationship between currency supply amount, GDP and inflation can not be accurately analyzed because it is calculated including sleeping money. Even if you increase the money circulating around the world, simply saving it does not increase production. Distribution volume is more important than the absolute amount of money. Money needs to be used for consumption and investment. To do that, it is necessary for companies to have earnings expectations from investment. Unlike things and services, it is assumed that money will be repaid. We need to consider risks. Demand and supply move not only by interest rates but also by risk, especially when risk is high, supply will not increase even if interest rate is lowered. Revenue expectations stimulate demand for funds, and lower risks alert the supply of funds.
Fiscal policy and monetary policy have been seen as effective means to alleviate the overheating and stagnation of the economy. However, fiscal policy has come to have more cases that lead to financial deterioration despite not stimulating the economy so much. The voice that monetary policy should be centered on economic policy rather than fiscal policy strengthened, and expectation for monetary policy increased. However, monetary policy has been said to be ineffective for economic stimulation by rate cuts, although it is effective in reducing economic overheating by raising interest rates. If interest rates are lowered to some extent (near zero), it can not be lowered any further, resulting in a situation in which policy measures are gone. Quantitative easing carried out at the next stage is also an unknown effect on inflation concerns and actual economic effects. Fiscal policy and monetary policy have not been able to actually obtain the effect analyzed by economics, but side effects such as fiscal deficit, inflation, and sudden economic recession are becoming a problem. Economics requires development of a monetary tightening method that does not result in fiscal consolidation and fiscal policy, inflation, monetary easing that stimulates the economy, and economic stagnation.
In economic policies, targeting certain economic indicators, we will control target economic indicators indirectly using government-controllable means to bring it to the desired direction and level. There are both economic indicators that can be finally reached by economic effect propagation and economic indicators that can be observed immediately. The former is the ultimate goal that you want to achieve even if it takes time, the latter is often the short term goal you want to immediately see the effect. Examples of propagation effects of economic indicators include the following.
I will list the checkpoints below as to what to select among various policies. Synergistic effects can be expected by implementing multiple policies at the same time and with different time orders. Rather than implement policies separately, I think about the best mix of policies.
The resources of policy are considered to be finite. In general, it is good practice to implement policies at times of recession, as a result end the policy, if the economy gets into a booming economy, recover the funds. In fact, there is concern that we will revert back to the economic recession at the timing when we abandon the policy, and it is hard to finish. When there is a recession, there is no remaining funds. Economic policy has a time lag to confirm its effect. The reasons are as follows: 1) confirming the effect requires acquisition and analysis of economic statistics over a certain period, 2) stimulation of economic policy requires time to penetrate the real economy, 3) provision of economic activity There are things that the effect propagates in conjunction with each other, and it takes time to propagate the effect, and so on.
In order to raise the overall Japanese economy, policies are implemented to expand to three growth factors that will lead to economic growth.
If you increase labor input, you can raise the production volume. Since wages are paid to the labor that was input, household incomes increase, consumption and savings increase, which leads to further production and investment. In Japan where the declining birthrate and the aging of the population are progressing, labor input has decreased, and it is currently the case that it acts negatively on production volume. Since the number of elderly people is increasing, we can increase labor input by advancing labor participation by elderly people. In addition, it is considered that women's labor participation rate is low compared with other developed countries, and women's labor participation can be increased to increase labor input. For this reason, policies for promoting employment of the elderly, policies for promoting employment of women (child rearing support, etc.) are implemented.
If you increase the capital which is the production factor, you can raise the production volume. An increase in the amount of capital (capital stock) is made by capital investment and public investment. Investment has new investment to increase capital stock and renewal investment to compensate for capital wear, but renewal investment does not increase capital stock. However, when we discard old equipment and replace it with new equipment, the quality of capital is improving, so it will work positive for production volume. In the period of high growth, new capital investment and public investment led economic growth. In recent years, the era in which capital investment is sluggish continues, and the Japanese economy is also sluggish. In order to grow the economy it is necessary to increase the capital stock. New capital investment and new public investment with a large economic ripple effect are necessary, not update investment (maintenance and refurbishment of facilities and infrastructure) without increasing capital stock. For this reason, policies will be implemented to promote new investment.
Even with the same amount of capital such as buildings and machinery facilities, state-of-the-art equipment than old equipment can produce more value-added products more. If you can produce more efficiently, production will increase and contribute to economic growth. More efficient production is achieved by increasing new capital investment and technological innovation through research and development. Likewise, even with the same amount of labor input, a highly skilled worker can produce more value-added products more. Advanced skills are obtained as a result of ongoing education and training and are also called human capital that produces production. We can contribute to economic growth if we try to accumulate skills of workers with long-term education and training. For this reason, policies will be implemented to promote research and development, to promote the introduction of the latest equipment, and to enhance education and training.
Adjustment of budget usage is also part of economic policy. It is industrial policy to allocate budgets focusing on industries that can strongly expect the ripple effect on the future economy. In times of recession, you can control the economy not only through the adjustment of the total amount, but also on the contents of allocation, such as focusing on industries with high employment absorption capacity, in order to prevent deterioration in employment. From the viewpoint of industrial policy, investment in advanced technology development and measures to support SMEs are conducted. In financial support, investment, loans, subsidies, tax cuts, etc. are carried out for industries that you wish to promote. Industries that want to be promoted are still small in market size in many cases, so private investment alone will not make large-scale investments. Also, if the production volume is not reached a certain scale or more, the price will not be cheap due to the economic effect of the scale, the expansion and diffusion of the market will not proceed. We will reduce the financial burden of companies, promote research and development, aim for corporate growth and market growth.
By stimulating or suppressing private economic activities by easing or strengthening government regulations, it is possible to control economic conditions in a desirable direction, to promote economic efficiency by free economic transactions, to encourage economic growth I will. We will implement regulatory reforms on individual industries, create new private businesses, promote technological innovation, productivity improvement and market size by promoting inter-company competition.