The potential effects of a recession in Japan on the Australian economy
a. The share of Japanese spending on Australian goods is 19 per cent of Australian exports, which are themselves equal to about 21 per cent of Australian GDP. What is the share of Japanese spending on Australian goods relative to Australian GDP7
b. Assume that the multiplier in Australia is 2, and that a recession in Japan has reduced output by 5 per cent (relative to its natural level). What is the impact on Australian GDP of the Japanese slowdown?
c. If the Japanese recession also leads to a slowdown of the other economies that import goods from Australia, the effect could be larger. Assume that Australian exports fall by 5 per cent (of themselves). What is the impact of this on Australian GDP?
d. Comment on the following statement from an economist on television: 'Unless Japan recovers from recession quickly, growth will grind to a halt in the rest of the world.'