Group ProjectNora Galloway, Zach Kallstrom and Scott PetersonMacroeconomicsElizabeth Sieverkrop6/5/142011 Tohoku Earthquake and Tsunami: History and Unit 1 AnalysisThe tsunami that struck Japan on March 11, 2011 was the most powerful to ever hit the country. Waves from the tsunami reached as high as 133 feet and the earthquake actually shifted the main island of Japan 8 feet east. Over 15,000 have were killed in the catastrophe, and many more injured. The tsunami also caused a nuclear emergency at the Fukushima Daiichi Nuclear Power Plant complex where 3 reactors malfunctioned and released radiation.The physical damage that occurred from the tsunami in Japan amounted to about 280 billion dollars. That is close to the total gross domestic product of Greece and twice as much as New Zealands GDP. Japan is responsible for 8.7% of the worlds GDP and has the third largest economy in the world. Japans power supply was diminished by as much as 40% as a result of the tsunami and earthquake. It has since come back but has not fully recovered back to where it was. The tsunami hit at a bad time for Japan- they were still recovering from the US recession. The disaster delayed economic growth that was expected that quarter. Japan was also facing rising commodity prices at the time of the tsunami. After the tsunami the Bank of Japan provided liquidly to keep financial markets stable. This means that people were able to convert their assets into cash with no loss of purchasing power. The tsunami and earthquake caused industrial production to decrease and affected supply chains and trade. The disaster affected Japans auto industry, setting back the countrys top automakers- Honda and Toyota. Prices for these makes of vehicles rose after the disaster, and exports of auto parts to the United States dropped significantly. Overall the United States economy was not affected much by the disaster. Many other countries that relied on Japan for materials were affected more severely. South Korean ship builders were facing higher prices for steel after the disaster and Australias merchandise imports (mainly passenger motor vehicles and refined petroleum) decreased by about 50%.Tourism took a big hit after the disaster because of the Fukushima nuclear incident, no one wanted to visit Japan and risk being exposed to radiation. Overall Japans economy has actually recovered quite quickly, output has steadily increased and supply chains being restored. Unit 2 Analysis: Japanese Economy and Impact of tsunamiNow lets look at the country as a whole during this disaster. The GDP growth rate for Japan in had been at a high 1.3 before the Fukushima Daiichi disaster, and soon after hit a dramatic fall to -.3 and then to an even more staggering -2. This is a major indicator of an economies actual health; for example, when the economy is expanding, the GDP growth rate is positive. If it's growing, so will business, jobs and personal income. The opposite is also true, as when the GDP growth rate is declining, then unemployment rises, investment slows, and personal consumption also slows. As graph 2.2 demonstrates and 2.3 also represents, employment drastically decreased, and job vacancies increased during the middle of 2011, right during the time period of the Fukushima disaster as an effect of the drop in GDP growth. At this time, we also see a change from japans typical decreasing and low inflation rates to a small but steady increase, which might explain a small amount of the unemployment we see at this point. We also see a declining trend in both gross savings and gross investment (fig. 2.5) for example, a major decline from 1992 to 2008 of about 15%. So current consumption was at an all-time high not too long before Fukushima, and resources were not being devoted to increasing output. It was already a troubling situation because already existing capital and practices cant be improved without a large amount of investment by the people, and thus a large amount of savings. As we already determined from looking at the percentage Japans GDP fell, they had a decrease in growth. A decrease in GDP growth is also simultaneously a decrease in GDP per capita, so the countrys people are losing output, and thus the country is not working at its full potential during the time of a falling GDP growth rate. Looking at graph 2.6 ( figure 8.1 on pg 153 in our book) we see that Japan started to hit modern economic growth in the mid 70s, placing it ages ahead of the rest of Asia, and making it a leader country. GDP growth rates are smaller (typically only growing at most 2 or 3%) because it is more costly to develop and implement completely new technology. Looking at graph 2.1 we see annual growth rates of no more than 2.6 at its highest, giving evidence of its place as a leader country. Looking at our supply factors immediately following Fukushima, we see a decline in employment 9or our human resources), and you can assume that there would be a decline in quality and quantity of natural resources for the duration of the cleanup in the least considering the radiation that was rampant at the time. We also have to look at our demand factor. Just looking at our imports (2.8) and exports (2.7), we can see that there is a decrease in demand for Japanese goods, and an increase in demand for imports, which adversely affects your GDP and as an effect, your growth rate. We can see though, from numbers of years past that the percentage of the work force with tertiary education has increased, which increases the quality and quantity of work available. But as formerly mentioned, with unemployment at an increase, we still lose out. Speaking of unemployment, On March 11, 2011, the earthquake and the tsunami that hit the Tohoku region of Japan caused 15,846 deaths, 6,011 injuries, 3,320 missing, and over 370,000 buildings destroyed or damaged causing both unemployment rates to rise, and job vacancies to increase. From April 2011 to January 2012, more than 120,000 job seekers in the disaster areas found jobs through the Public Employment Service Offices in Japan. More than 60,000 individuals from the disaster area are receiving unemployment benefits twice as many as the previous year. The benefit period for unemployment benefits, normally 90 330 days, was extended by a maximum of 210 days. These numbers alone demonstrate how employment rates have changed as a result of the Tsunami and nuclear plant combo. The unemployment rate went up to 4.7% from 4.6% in March due to job losses in the retail and wholesale sectors alone, according to the Japanese Ministry of Internal Affairs and Communications. The number of workers in those sectors dropped in April by 390,000 from a year earlier. Looking at graph 2.9 we see a measure of japans consumer spending, from 2010 to 2013. We see a dramatic increase during the time of April 2011 following a not-so-drastic rise in spending. That enables cyclical unemployment as an explanation because there was a decrease in employment at just about same time as the decrease in spending, and because there had been a decrease in demand of Japanese made goods for a portion of time. We could also claim that its frictional because most people displaced by the disaster would go back to searching for work soon after. Inflation, on the other hand also declined previous to the disaster though that can be considered a good thing. That means that each unit of money will buy more goods and services. However, we see a slight increase after the event, meaning purchasing power has dwindled a small amount. We can pin that to a lack of supplies and labor available during the time after march 11th. That would mean that the per unit production cost has risen and that the economy was suffering slightly from cost-push inflation during the period after the tsunami. Cost-push inflation reduces real output, and raises prices, so demand drops, and unemployment rises, adding to the ever increasing pool of people looking for work.

Household savings has gone down, mostly I tend to think because of recent super low interest rates (2.10) It gives incentives to hold of paying loans and instead to buy things with the money you saved from that. There were no negative expectations either, because the tsunami was unexpected, and the nuclear plant was slated to be taken offline on the 25th, so there was no incentive for anyone to save for hard times ahead or anything. With low interest rates, borrowing would also be rampant and keep people from wanting to save and instead increases current consumption. So while the savings schedule will shift downward, the consumption schedule will have shifted upward. But the upside here is, the lower the interest rates, the higher the investment in a nation.Look at figure (2.11) showing the aggregate expenditure model depicting the time directly after the tsunami. As shown in the Figure, the disaster has caused Japans aggregatesupply, (the total amount of goods and services supplied by businesses and the government, including both consumer goods and capital goods) has shifted from AS-1 to AS-2, causing the whole economy, as shown by the GDP to decrease from Y-1 to Y-2. Also, in order to make up for the decrease in their GDP as well as to reconstruct the areas that have been damaged, Japan apparently reduced its development assistance programs, which further hurt investment and unemployment. As a result of the natural disaster, prosperity abroad faltered, and the yen depreciated a small bit (but it still had increased over 50% against US currency.)Because consumer spending was a higher level, the Aggregate demand curve would have shifted to the right, as determined before, we had higher borrowing, and so it shifts to the right even more. Government spending in general has risen, so that shifts it even more to the right on top of that. Even Exports previous to march 11th 2011 were on the rise, shifting the curve to the right. After the disaster, the curve shifted to the left to reflect less consumer spending due to consumer expectations, although government spending continued to rise, along with borrowing. Exports, however dropped off and the curved moved leftward.

As we determined earlier, per unit production cost is up, and that means that the total input cost has risen as well. Since consumption dropped off during the time of the incident, and input costs rose, that we were seeing aggregate supply at the very beginning of the long run, or just later in the short run. Our labor supply decreased (the unemployed and vacancies) which moved out curve to the left, and the price of both inputs and imports decreased aggregate supply as well. Productivity is low as a result from the per unit production costs being high, and so, the supply curve joins the demand curve by being mostly to the left.Unit 3 Analysis: Governmental Actions after the DisasterWhen a natural disaster strikes chaos ensues and the last question on everyones mind is how it affects the economy. The tsunami waves crashed into the Fukashima Nuclear Plant and causing a level 7 meltdown and a nuclear disaster not seen since Chernobyl and Three-mile Island. The damage was estimated at $300 billion making this the most expensive natural disaster in history. With all of this in mind, Japans already struggling economy would take years to get back on track, This section will discuss the governments interaction in this disaster and how it dealt with the disaster and its applications of fiscal policy helped to keep the economy of Japan afloat. In discussing the economy of a country it is always easiest to let the numbers do the talking. As of 2012 the Japanese GDP is 5.96 trillion USD. The year before the Great East Japan Earthquake (2010) the GDP was 5.040 trillion USD. The year of the earthquake the GDP was 5.50 trillion USD. We would assume that the earthquake in Japan had little impact on the overall GDP of the country. And with the economy of the affected area at only 2.5% of the overall GDP the effect was absorbed very well. However, with one of the largest and most sophisticated economies in the world Japan is diverse enough in the economy that this tragedy is but a ripple in the sheets of the overall economy of Japan. So to discover what is really going on we have to look at the trail of spending. In this case it is the Japanese government and what they are doing to increase the economy after such devastation. In measuring the impact of the government we need to look at taxes. In January of 2012 the government of Japan lowered the Corporate Tax Rate from 40.69% to 38.01% this is a record low at the same time the Personal Income Tax Rate rose to 50.84% from years of 50%. This appears to be contradictory. By lowering the corporate tax rate they are trying to spur business investment. However, the rise in the personal income tax rate would indicate that they are trying to slowdown consumption. These numbers only recently changed which would indicate that the tsunami was not the main contributor of this change. Japan is a country with an aging population and has a system similar to the USs Social Security System at retirement. This is Japans National Pension Plan and it is the largest pension plan in the world at 1.44 trillion USD. During the crisis and the immediate response to the Tsunami the government of Japan used these funds to pay for the recovery effort. The government debt to GDP as of 2013 sits at a record 227.2% which has steadily increased since the tsunami which was a 200% in 2011. This is where the biggest difference is being seen from the impact of the tsunami. The government of Japan has had to increase its debt to help regulate the economy. This is coming off of the world financial crisis, has nearly doubled Japans National Debt since 2001. However, the Japanese debt is held primarily by its own people making the debt an asset as well as a liability. This is doing to the returns of the investment for the reconstruction being paid back to the citizens of Japan.Japan's industrialized economy is the world's third-largest purchasing power parity (PPP) after the United States, and China. It is the second-largest by market exchange rates. Its economy is highly efficient and competitive in areas linked to international trade that helps it adapt quickly to an event like the Great East Japan Earthquake of 2011. Government-industry cooperation, a strong work ethic, mastery of high technology, and small defense allocation has helped Japan quickly respond to this epic natural disaster. Japan has few natural resources, and trade helps it earn the foreign exchange needed to purchase raw materials for its economy.Recovery; everyone has their own definition of it. Today there are still major works going on in rebuilding the areas affected by this event. The Nuclear Power Plants are still not coming back on line to provide power and Japan is debating the very nature of how their power will be generated in the future. An event of this magnitude allows an economy to redefine itself and this is happening in Japan today. The events of March 2011 and the aftermath are reminiscent of the post World War II rebuilding of Japan. Just like the end of World War II when Japan vowed to rebuild itself only to become the third largest economy of the free world, one gets the feeling that the Japan that will emerge from this crisis will be leading the world in new ways to come. Worrying about their economy due to a natural disaster is the last thing that Japan will have to do.