A comparative case study of Japan and China Research Paper

A comparative case study of Japan and China - Research Paper Example It was experienced from the 1929 to late 1930s for some countries and early 1940s for others. It is believed that most of the countries came out of the depression as a result of the Second World War. This depression was the longest, widespread and deepest depression of the 20th century and is believed to have started in the United States and spread to other parts of the world. A depression results after a prolonged recession and results in loss of income, reduced profits, decline in trade, and increased unemployment among others. There have been various recessionary periods over the last several decades especially the Japanese lost decade of the 1990s, the Asian crisis and the recent financial crisis of 2008 but not to the magnitude of the great depression. The paper will discuss the various policies undertaken by the governments of Japan and China in response to the crisis and why the policies were adopted as well as their effectiveness in overcoming the crisis. Japan and China had almost similar conditions in that they relied on export of cash crops to the US and European countries especially silk and cotton. They also had most of the population as small agricultural farmers hence were affected much as a result of declining crop prices. However, Japan was under the gold standard system of monetary policy while China was under the silver standard hence not affected much by the great depression... The Keynesians who rely on demand side macroeconomics attribute the great depression to fall in demand and international trade. A fall in demand or underconsumption and overinvestment results in an economic bubble and coupled with incompetence of government policies resulted in lack of confidence (Frank & Bernanke, 8). The lack of confidence resulted in decline in consumption spending as well as investment spending causing panic among bankers and deflation. The investors found it more profitable to hold money rather than invest as profits were declining hence reacted by keeping clear of markets leading to low economic activity. Low activity leads to unemployment and loss of income thus aggravating the situation due to reduced demand. The decline in prices also meant that consumers could buy a lot of goods with less money hence they did not demand more of the goods leading to drop in demand. This causes a recession which refers to a period of economic downturn as a result in reduced a ggregate demand. A prolonged recession leads to a depression. The monetarists on the other hand, explain that the depression was as a result of ordinary recession. In the business cycle, recessions do occur and are necessary to stimulate the economy but it is government policies undertaken at such a time that worsen the situation. The monetarists thus believe that policy mistakes by the monetary policy authorities were the cause of the depression. The policies caused the shrinking of money supply thus worsening the situation (Bernanke, 5). The decline in money supply due to contractionary monetary policy and bank failures beginning 1930 was believed to have caused the depression. The federal government did not use expansionary monetary policy to counter the decline in money