Introduction to Japanese Economy

Final Examination February 2018

Ryoichi Imai

2018/01/22

Answer to all the questions. The answers must be simple and short. A simple copy of my lecture note will be downgraded. Follow the following instruction.

1. Convert your file to a PDF format (.pdf).

2. Name the file as< LAST-First-Course title> like <YAMADA-Taro-Economy>

3. Upload your pdf file to my JTW-economy folder at the file sharing system of the Kyushu University by Thursday, February 8. No late submission will be accepted

4. I will tell you the password in the last class.

5. Do not send your work by e-mail. Do not bring it to my office in a USB memory. Thank you for your cooperation

The Lost Decade: True or False?

Is each of the following statements True or False? If it is false, replace the wrong word(s) with correct one(s). such as "Bush -> Obama".

1. Under the Bretton-Woods system, the United States had an obligation to stabilize the price of gold, while other countries were responsible to maintain the price of silver.

2. In 1971, the US president Carter announced that the US had suspended the convertibility of gold with US dollar.

3. The Smithonian agreement set the value of US dollar at 280 yen.

4. The US president Reagan was once a comedian before he became a politician.

5. The Twin deficits under the Reagan administration made the Yen appreciate against US dollar.

6. In 1985, the financial authorities of the 5 major countries met at NY and agreed that the US dollar should depreciate down to 240 yen.

7. The Ever-Appreciating Yen Syndrome hypothesis argues that the Japanese Yen is undervalued if the actual value of the US dollar is lower than its PPP level. 

8. Japan raised the general VAT rate to 5% in 1995. 

9. The 1997 currency crisis was harsh, especially for Thailand, Malaysia, China, and Korea.

10. Korea finally protected its currency from devaluation, thanks to the currency board system.

11. Brazil introduced dollarization to stabilize its price level, but failed eventually.

12. Prime Minister Koizumi was supported by his economic minister Ono Yoshiyasu.

13. Koizumi's political goal was to privatize the National Railroad.

14. The financial crisis was the most serious, when the economic minister Ono took a drastic policy to clean up the unperformed loans in 2003.

15. The Credit-Crunch hypothesis argues that the weak companies financially supported by the banks reduced the productivity of the Japanese economy in 1990s.

16. The BIS regulation on banks' equity ratio mandated the banks that are engaged in international business to maintain their equity ratio higher than 10%.

17. The Zombie hypothesis argues that Japanese firms were weakened by the financial difficulty caused by the bad loan problem.

18. The Koizumi cabinet privatized the FILP in order to destroy the Zombie firms and enable the strong recovery of the Japanese economy. 

19. The Lehman Brothers were called as the "dream team", because the leading traders and the Nobel-laureate scholars joined it.

20. The subprime crisis was caused by the soaring energy price in 2008.

Corporate Governance

21. Katsuhito Iwai says that the nature of corporation has "duality". Explain this.

22. Describe the contrast between the corporate nominalism and realism

23. How does the pyramidal system of shareholding work in the contemporary corporate governance? Discuss examples.

24. How does the cross-shareholding work in the contemporary corporate governance? Discuss examples.

25. What is the Horiemon-Livedoor case? What does it suggest for corporate governance in Japan?

Understanding Inequality and Declining Labor Share

Read the following articles and answer to the questions

A. Taxing the 1%: Why the top tax rate could be over 80%

26. "there is indeed a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares " What does this mean?

27. There are three hypotheses to explain the recent rise in the top 1% income share. What is the first hypothesis, and how much is the optimum highest income tax rate according to the hypothesis? 

28. What is the second hypothesis to explain the concentration of pre-tax income to the top 1%?

29. What is the third hypothesis to explain the concentration of pre-tax income to the top 1%?

30. What does Figure 2 show?

31. "The top tax rate could potentially be set as high as 83% – as opposed to 57% in the pure supply-side model." Why?

32. What are "the Reagan and Thatcher revolutions "?

B. Aggregate productivity and the rise of mark-ups

33. How should we decompose the factors of economic growth, if the economy is not perfectly competitive?

34. “From a social perspective, low-mark-up firms are too large and high-mark-up firms are too small”. What does this mean?

35. Consider an industry consisting of Firm 1 with a higher mark-up ratio, and Firm 2 with a lower mark-up ratio. What will happen if there is a productivity improvement in Firm 1?

36. Why does “eliminating mark-ups would raise aggregate productivity by around 40%” ?

37. Why did Harberger (1954) under-estimate the allocative loss caused by monopoly than the research by the authors?

38. What is the positive effect of monopoly to improve productivity that works in an opposite direction to the allocative efficiency discussed as above?

39. “Eliminating mark-ups in 1997 would have only raised aggregate productivity by around 5%-20%”. Why?

C. Concentrating on the Fall of the Labor Share

40. What is the tendency that is observed in the US economy, which contradicts one of the famous Five Stylized Facts, pointed out by Kaldor (1961)?

41. Why is international trade not an important reason for the decrease in the labor share of the US economy?

42. Why is the rapid decline in the prices of information and communication technology equipments not consistent with the decline in the labor share?

43. What is the new hypothesis the authors propose in order to explain the decline in the labor share?