Macroeconomic Policies in Developed and Developing Countries: Inflation and Growth Indian Inflation is it a Threat to Growth and Development?

? Chart 1: Inflation and Economic Growth in India

India - Economic Growth and Inflation
Annual % change in real national output, Annual % change in consumer prices
18.0 18.0

16.0

16.0

14.0

14.0

12.0

12.0

Percent

10.0

10.0

8.0

8.0

6.0

6.0

4.0

4.0

2.0

2.0

0.0 06 07 08 09 10 11 12 13

0.0

Consumer price inflation (%)

Real GDP (% change at constant 2004 prices)

The chart above shows the annual rate of consumer prices inflation and real GDP growth for the Indian economy. The table below provides summary data for key indicators:
Table 1: Indian Macro Indicators Real GDP (% change) Consumer prices inflation (per cent) Government fiscal balance (% of GDP) Current account balance (% of GDP) 2009 8.2 12.4 -9.4 -2.7 2010 10.5 10.5 -6.9 -2.7 2011 6.5 8.4 -8.1 -4.2 2012 3.3 10.4 -7.3 -4.8 2013 3.4 11.1 -6.9 -4.1 2014* 5.1 9.0 -6.5 -3.5

Source: OECD World Economic Outlook, data for 2014 is a forecast

(i) (ii)

Analyse some of the causes of persistently high inflation in the Indian economy (20 marks) Evaluate the extent to which high inflation is a significant threat to Indias continued growth and development (30 marks)

Japan Can Abenomics lift the Japanese economy out of deflation and slow growth? Table 2: Key Macroeconomic Indicators for the Japanese Economy
2009 Real GDP (% change) Consumer spending (% change) Gross fixed capital formation (% change) Exports of goods and services (% change) Imports of goods and services (% change) Output gap (% of potential GDP) Unemployment rate (% of the labour force) Government fiscal balance (% of GDP) Short-term interest rate - per cent per annum Consumer price - headline inflation per cent Current account balance (% of GDP) -5.5 -0.7 -10.6 -24.2 -15.7 -4.8 5.0 -8.8 0.5 -1.3 2.9 2010 4.7 2.8 -0.2 24.4 11.1 -0.9 5.0 -8.3 0.2 -0.7 3.7 2011 -0.6 0.4 1.1 -0.4 5.9 -2.1 4.6 -8.9 0.2 -0.3 2.0 2012 1.9 2.3 4.4 -0.1 5.5 -0.9 4.3 -9.5 0.2 0.0 1.1 2013 1.8 1.8 3.5 1.9 2.4 0.1 4.0 -10.0 0.2 0.2 0.9 2014 1.5 1.0 1.4 7.8 4.1 0.8 3.9 -8.5 0.1 2.3 1.2

Source: OECD World Economic Outlook, 2014 data is a forecast

Chart 2: Japanese Real GDP and the Exchange Rate Index

Japan - Real GDP and Exchange Rate Index
Top Pane: Real GDP, Bottom Pane: Exchange Rate Index, 2005=100, monthly average
106 105 104 103 102 101 100 99 98 97 96 95 150 140 130 106 105 104 103 102 101 100 99 98 97 96 95 150 140 130 120 110 100 90 80 06 07 08 09 10 11 12 13

Index Index

120 110 100 90 80

Japan, real GDP by expenditure, index, 2005 = 100

Japan, Exchange rate index 2005=100 Source: IMF

(i) (ii)

Analyse some of the cause of the persistent deflationary pressures experienced by the Japanese economy in recent years (20 marks) To what extent is the policy of Abenomics an appropriate strategy to drive improved macroeconomic performance in Japan? (30 marks)

Suggested reading India Inflation, Growth and Development Indias battle against inflation (FT, Jan 2014) www.ft.com/cms/s/0/f0256d5c-8506-11e3-a79300144feab7de.html India central bank considers inflation targeting (FT, Jan 2014) www.ft.com/cms/s/0/cc77f4d6-8328-11e386c9-00144feab7de.html Food prices; a bricks and mortar problem for Indian economy (Reuters, Dec 2013): www.reuters.com/article/2013/12/26/us-india-economy-inflation-idUSBRE9BP0HG20131226 In India, economic slowdown and inflation cause middle class to defer dreams (Washington Post, Nov 2013) Click here Is India becoming an inflation nation? (BBC, Oct 2013): www.bbc.co.uk/news/world-asia-india-24753675 What is wrong with Indias economy? (BBC, July 2013): www.bbc.co.uk/news/world-asia-india-23282350 High Inflation Deepens India's Stagflation Fears (WSJ, Dec 2013): http://online.wsj.com/news/articles/SB10001424052702303949504579261780231175394

Abenomics and the Japanese Economy Abenomics is the name given to a suite of measures introduced by Japanese prime minister Shinzo Abe after his December 2012 re-election to the post he last held in 2007. His aim was to revive the sluggish economy with "three arrows": a massive fiscal stimulus, more aggressive monetary easing from the Bank of Japan, and structural reforms to boost Japan's competitiveness. (Source: FT Lexicon) Why Abenomics holds lessons for West (Linda Yueh, Dec 2013): www.bbc.co.uk/news/business-25369031 Abenomics may take 10 years to work (BBC, Oct 2013): http://www.bbc.co.uk/news/business-24440893 Japan banks on success of Abenomics (Stiglitz, Apr 2013): http://www.theguardian.com/business/2013/apr/08/japan-shinzo-abe-yen-economics Abenomics: The objectives and the risks (BBC, July 2013): http://www.bbc.co.uk/news/business-23339712 What is Abenomics? (Business Insider, July 2013): www.businessinsider.com/what-is-abenomics-2013-3 FT articles on Abenomics - http://search.ft.com/search?queryText=abenomics Abenomics one year on Sloman Economics site: http://pearsonblog.campaignserver.co.uk/?p=11625