2022 JC2 H2 Prelim Essay Q4 (Suggested Answers).docx

2022 H2 Prelim Essay Q4RapidpopulationageingandashrinkinglabourforceinJapanaremajorchallengesforachievingfurtherincreasesin its livingstandardsand ensuringthe financialsustainability of its public social expenditures.(a) Explainhow Japan’s rapidageingpopulationaffectsits futureeconomicperformance.[10](b) DiscusstheeconomicpolicieswhichmighthelptheJapanesegovernmenttomitigate the adverse impact of its rapidly ageing population.[15] Part aSuggested AnswerThe 3Cs to Question Interpretation:Command Word Concept Word Context WordExplain how future economic performanceJapan’s rapidageingpopulationElaborate with economicrigour (including graphicalanalysis) Future economic performance● Internal: Potential EconomicGrowth, Unemployment Rate,Inflation Rate● External: Healthy Balance ofPaymentUse of AD/AS analysis Application toJapan context IntroductionPopulationageingin Japanhasprogressedmorerapidlyas comparedto othercountries.Currently, Japanhasthehighestold-agedependencyratioofallcountries,witharatioin2017over50personsaged65andover, forevery100personsaged20to 64andthisratiois projectedto riseto 79perhundredin 2050.Thisessaywillexplainthe impactof Japan’s rapidageingpopulationon its futureeconomicperformance.Japan’s futureeconomicperformanceincludesthekeymacroeconomicobjectivesthataresustainedeconomicgrowth,lowunemploymentrate,lowinflationrate and favourable balance of trade (BOT). Body I: Impact on potential economic growth 1

Japan’s working-agepopulation(personsaged15-64)hasbeendecliningtrendsincethelate1990sandthisdeclineislikelytofeedthrougha considerabledeclineinthetotal labour force over the next few decades. Withhigherretirementfiguresandinsufficientyoungerpeopleenteringtheworkforceto replacetheseworkers,thequantityofworkforcewilldropfurtherfuellingthefallinLRAS from AS0 to AS1 . Coupledwithshrinkinglabourforce,olderworkersmaynotbeabletokeeppacewithtechnological changes and changing work requirementsFalling labour productivity Thus,thefallin bothquantityandqualityoflabourwouldlimitpotentialeconomicgrowth as Yf0 falls to Yf1 Fall in potential economic growth Figure 1: Falling quantity of labour force in Japan Body II: Impact on future balance of payment & potential economic growthHowever, thelongerworkinglivescouldhelplimitthedeclineinJapan’sworkforceandboost social security contributions to finance rising health and pension expenditures.SuccessfulR&Dthatprovideroboticssolutionseggreaterautomationinmanufacturingand services sector that reduce the need for physical workrise in labour productivity and expansion of servicesectorgain comparative advantage in say, robotics designand manufacturingincreases in future trade surplushealthy balanceof payments in future fallingcyclicalunemploymentasfirmsexpandoutputandincreasetheirderiveddemand for labourincreases potential economic growth Body III: Impact on future price stabilityIn the longer run, the fall in labour force > fall in demand for labourrise in nominal wages in future across the variouslabour