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i dont think the right decision would be closing down the factory as such. You would be making so many losses. Instead of trying to recover, you would making your situation way worst.

Laura

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2. What is the multiplier effect and how does the fall spending on Japanese exports by the rest of the world result in an even greater fall in Japan’s GDP?

The multiplier is the amount of money pumped into the Japanese economy, without other countries buying Japanese products. Without this demand, supply must drop to avoid business making major losses and not being competitive anymore. As well as reducing supply cutting jobs is a very easy option and most countries will do this. The loss of jobs will cause the GDP to drop.

3. The easiest would be workers. By cutting say 100 workers, one cuts costs in salaries and benefits without hurting output too much. Especially in Japan where there is likely a surplus since fewer countries are importing from Japan. After a while, in the long run, I could make cuts in factories if the demand is still bad, and in reality I might just shut down before things get worse. Maybe start up again when things are better.

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I think that your decision of finally closing down the factory is the safest and the wisest, since it would be quite pointless to keep losing money.

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The multiplier effects illustrates how a little amount of money spent on the normal flow of the economy, can later be reflected by a much greater amount, creating economic growth. Thus, as exports sellings have decreased, inputs are lower, thus causing the fall in GDP.

If I was the manager of a Japanese firm facing falling demand,I would do the same as many managers do and start to cut down employees’ wages and quantity production. If the demand didn’t increase in the long-run, I would start to lay off workers to decrease the company costs even more.

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I find it interesting in your response to question three that you suggest using the opportunity to hire skilled workers. While I can see that being valuable considering a long term contraction in the market doesn't it make sense to cut costs and then keep them low or reduce production some how? Assuming there simply isn't as much demand sometimes it can make sense to limit supply.

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2. The multiplier effect is the effect in which one small action can be multiplied by people just naturally following along. For example some starts selling stock because they think that the stock is peaking. Others soon start thinking the same thing worrying that they will miss out on their chance to cash in on the program. Soon enough everyone is selling and the stock or product is worth nothing and a depression is entered. It is the effect that allows a crisis of confidence. The fall on spending on Japanese exports by the rest of the world results in the fall in Japan's GDP by this effect because as people begin buying less from Japan not only do they lose direct income then their citizens question the economy and begin saving and stop spending which can lead to farther economic losses.

3. Assuming I was a manager of a Japanese firm the short term costs I would look to cut would be those that I could either buy back cheaply later if necessary, or those with the least amount of investment. In short labour. There are always qualified people looking for jobs, especially in a bad economy, and as such you can easily afford to cut wages or sack your employees entirely without fear of losing them forever. Thus this is a wise area to cut. Beyond that for long term cutting ultimately it makes sense to cut production to raise the price a bit higher and then just hold with lower numbers of workers. Overall the market has contracted and the only thing to do is scale down the firm as well.

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1. I like your idea about investing in more productive machinery. However, I think that in uncertain economic times many firms would be unwilling to take that risk as they could not be sure that it would pay off, and would also increase their chances of bankruptcy. So I think the government, during these periods, should consider giving R&D grants to firms so they can invest in machinery to be more productive. This would drive the prices of their goods down.

2. Like you, I also think that it is better to ride out the storm, as cyclical fluctuations are a part of any market economy and aren't completely unavoidable. Again though, there are lots of people who try and speculate on the stock-market and try and make lots of money by short-selling and so on, who make money by trying to avoid the storm, so to speak, and it can sometimes be these people who trigger a crisis of confidence, which can in turn exaggerate the effects of the recession.

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2. The multiplier effect is the theory that an initial change in aggregate demand causes a change in aggregate output for the economy that is a multiple of the initial change. The multiplier effect is evident in the case of Japan; falling incomes in other countries causes a decrease in demand for Japanese imports, and because Japan is an export dependent country, this will cause AD to decrease as firms reduce investment and people reduce consumption. This shift in AD will result in a fall in GDP, whose cost is far greater than the initial sum lost – the multiplier effect.

3. If I were the manager of a Japanese firm facing falling demand from international customers, I would cut labor, because it is usually the most expensive factor of production. I know that this would not be beneficial in the long run, because if many firms laid-off workers, then unemployment would increase and consumption decrease, and AD would shift further to the left. However, in the long-term, because many firms are likely to do this, then I think that people would be willing to work for lower wages, because of the falling price level, so I would take the opportunity to hire skilled labor that would be more expensive.

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In your response, you talk a lot about confidence in the market. I agree with you on this idea. In some of the greatest recessions – like the one that occurred in the U.S. in the 1920s – one of the initial responses was a complete loss of confidence. People withdrew their shares in the market, and therefore it crashed. I think it is important to remember that markets fluctuate, and that a recession does not always imply that investors should immediately withdraw shares. Sometimes, it’s a lot more beneficial to the market to ride out the storm.

- Catherine

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2.) The multiplier effect refers to the impact that each dollar that is spent has on the economy. Generally, a dollar spent in the economy has a greater impact on the economy than its worth would suggest. A while ago, I heard about the recycler effect, which argues that (and I am not sure if my numbers are entirely correct here) one dollar spent is worth approximately 13 dollars to the economy. When spending falls on Japanese exports, wages in Japan will decrease, spending by the workers will decrease, etc. As a result, the GDP falls.

3.) In the short-run, I would decrease my number of employees as well as individual wages. I would also try to invest in more productive machinery that operated at a lower cost. In the long-run, I would attempt to come up with an extraordinarily brilliant way to differentiate my product, and make it more appealing to potential customers.

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A crisis of confidence is when the consumer starts to doubt the state of the countrys economy. I believe that Dennis has pointed out correctly that it affects the aggregate demand. This doubt will cause less consumers spending.

2. What is the multiplier effect and how does the fall spending on Japanese exports by the rest of the world result in an even greater fall in Japan’s GDP?

The multiplier is the amount of money pumped into the Japanese economy, without other countries buying Japanese products. Without this demand, supply must drop to avoid business making major losses and not being competitive anymore. As well as reducing supply cutting jobs is a very easy option and most countries will do this. The loss of jobs will cause the GDP to drop.

3.If you were the manager of a Japanese firm facing falling demand from international customers and you had to cut costs, what costs would you cut in the short-run to remain competitive? What about in the long-run, assuming demand for your products remained weak?

I would reduce the productivity of the business and produce less goods and lay off employees as the business would not be running efficiently or reduce wages temporarily. A business must run effciently to be competitve over the long term. Harsh as it is!

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I like how you worded your response to number one insomuch as that it was very understandable how a loss of consumer confidence spurs a recession and pushes something that wasn't necessarily so bad right over the deep end. And on number three, I agree with you, it would be pretty tough to have to tell people that work for you that you will be lowering their wages.

-Dennis-

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2. The multiplier effect is when a certain amount of money injected into an economy produces a

greater amount of economic growth than would have been accounted for with that particular amount of money. Japan's lack of the multiplier effect is their downfall because surrounding countries refuse to purchase their exports and are therefore not injecting money into the Japanese economy.

3. In the short run, I would slowly minimize costs by cutting wages of workers and in the long-run, I would consider firing workers and possibly cutting down on production.

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As aggraegate demand falls, consumers and investors start wondering whether their investments are being wise or not. As they lose confidence in the market, they stop investing and consuming, worried that they might be naively losing their money. As a result, the recession gets worse. This can be indeed seen in Japan, where consumers are no longer consuming, since they do not feel their incomes are enough, and fear the recession.

2. What is the multiplier effect and how does the fall spending on Japanese exports by the rest of the world result in an even greater fall in Japan’s GDP?

The multiplier effects illustrates how a little amount of money spent on the normal flow of the economy, can later be reflected by a much greater amount, creating economic growth. Thus, as exports sellings have decreased, inputs are lower, thus causing the fall in GDP.

3. If you were the manager of a Japanese firm facing falling demand from international customers and you had to cut costs, what costs would you cut in the short-run to remain competitive? What about in the long-run, assuming demand for your products remained weak?

At first, in the short-run, although I feel ashamed by saying it, I would indeed lower wages of workers, and lay off some. However, if this does not work, and demand keeps decreasing, I would shut down factories, indeed.

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