Section A Answer this question. Japan's Economic Difficulties Table 1: Japan Consumer Prices Index, June 2013-December 2015 Consumer Prices Index 2010 June = 100 2013 June 99.8 2013 December 101.0 2014 June 103.4 2014 December 103.4 2015 June 103.7 2015 December 103.6 Source: MIAC, JMA Table 2: Japan Consumer Prices Index, Categories of Spending Category of Spending Weighting Year on Year % price change December 2015 Food 25.3 2.4 Housing 21.2 -0.1 Fuel, light and water charges 7.0 -6.6 Household goods 3.5 2.3 Clothing and footwear 4.1 1.8 Medical care 4.3 0.8 Transport and communication 14.2 -2.8 Education 3.3 1.5 Culture and recreation 11.5 2.2 Miscellaneous 5.6 0.7 Source: MIAC, JMA Japan's economy shrunk by 0.4% in the second quarter of 2015. This was as a result of weak domestic consumption and slow exports. Should the economy continue to contract for another quarter and inflation expectations start to fall, expansionary monetary policy is likely to be introduced. Private consumption, which accounts for about 60% of Japan's national income, fell 0.8%, partly because of weak overall wage growth and partly because of bad weather. Household spending has struggled to recover following a sales tax rise last year, which was part of the government's aim to push up prices to achieve its 2% inflation target. Despite wage rises at some big firms and labour shortages, it has been a struggle to convince people to spend much more money on consumer goods after last year's sales tax rise. Increasing consumption is proving even more difficult given falling oil prices. Exports dropped 4.4% in the same quarter. The sharp plunge was partly due to disappointing demand for Japanese products, especially in the US and China. The slowdown in China, a major market for Japanese exporters, has further raised concerns. It is now two years since Japan's prime minister, Shinzo Abe, introduced his policy, sometimes called 'Abenomics'. This aims to revive the economy, boosting growth and conquering years of deflation. The programme called for more government spending, large increases in the money supply and reforms to a highly regulated economy. But the pace of reforms has been slow, particularly in the protected agricultural sector. The poor figures on the economy resulted in the central bank stating it will not yet meet its 2% inflation target – a key part of Abenomics – although the bank insists that healthy price rises are around the corner. Source: Agence France-Presse in the Guardian

1. (a)Use Table 1 to identify two periods when the Consumer Prices Index fell in Japan.[2]
2. (b)Explain how Table 2 could be used to support the view that falling oil prices have contributed to downward pressure on consumer prices.[2]
3. (c)With reference to the year on year price changes shown in Table 2, explain which category of spending had the greatest impact on the real income of the average household in Japan in 2015.[4]
4. (d)Explain whether expansionary monetary policy is likely to increase prices and help Japan to achieve its target inflation rate of 2%.[6]
5. (e)Discuss whether all individuals and firms in Japan would benefit from a rise in the rate of inflation.[6]