Cambridge International as and a level Economics Ebook

SELF-ASSESSMENT TASK 
10.4
1
Explain why seeking to reduce a budget defi cit may 
confl ict with the aim of increasing the country’s 
economic growth rate.
2
What does the information suggest might have 
happened to the prices of Japanese exports between 
April 2013 and March 2014?
3
Explain one government macroeconomic aim which 
might benefi t from a government reducing its budget 
defi cit.
4 a
What is meant by ‘a missing J-curve eff ect’?
 
b
How may ‘energy accounting for a high proportion 
of Japanese imports’ explain a missing J-curve 
eff ect?
5
Discuss how the Japanese government could 
encourage its fi rms to keep more of their production 
in Japan.
Economic growth in Japan remained sluggish in the first 
quarter of 2014. A month later the Japanese government 
raised the country’s sales tax from 5% to 8% to reduce 
the budget deficit. At the same time, export revenue 
was rising by less than import expenditure. Between 
April 2013 and March 2014 the value of the yen fell by 
27% against the US dollar. Most Japanese exporters 
had reacted to the fall by increasing their profit margins 
rather than sales overseas. Some Japanese economists 
described the continuing increase in the trade deficit as 
a case of a missing J-curve eff ect. There are a number 
of explanations given for this phenomenon. One is that 
energy now accounts for a high proportion of Japanese 
imports. Another is the declining competitiveness of 
Japan’s electronics industry and a steady outflow of 
manufacturing capacity to other countries.
270
Cambridge International A Level Economics

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The Laff er curve
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