Question

What does the productions possibilities model in the US, Japan and other countries look like? (Describe it). Are these countries efficient or inefficient? Is the debt picture for these countries sustainable into the future? Why/why not? Be certain to define all terms. Your response should be short in nature and no more than three paragraphs.

Answer 1

Sector-wise composition of GDP in the United States of America is 63.6% in service, 30.5% in industry, and 6% in agriculture. In Japan, it is 1% in agriculture, 28% in industry and 71 % in service sector. The sector-wise composition of GDP in other countries depends upon the kind of economy it is and its factor endowment. For example a growing economy with good amount of land, other natural resources and a large population would invest more in agriculture than an economy with less population and smaller land availability. However, there may be exceptions to the previous statement, as there may be countries that have high amounts of natural resources such as minerals that allow for ventures in the industrial sector and skilled labour that could lead to more investment in service sectors. It would be profitable for such countries to goinvest in industries and services rather than trying to develop its agricultural production. The food needs can be met with trade. The concept of gains from trade and specialization are key to decision making for investment in specific sectors.

Yes, the above mentioned countries are efficient as they have managed to turn their strengths into their advantages. For example, Japan has been able to emerge as a developed nation despite having very little factor endowment. This is because it has specialized in cutting-edge technology and posesses highly skilled labor.

Debt picture for Japan and the USA:

• Japan has a debt-to-GDP ratio of nearly 250 %. It is the highest in the list of developed economies. Studies suggest that people are uncertain about the government's solvency. However, econometric analysis by unit-root test done in a research paper in Kobe university suggests that the Japanese government's debt is infact sustainable. This is also because 90% of the government's debt is towards the Japanese people.

• The United States of America is at a relatively safer position with its government debt to GDP at 105.4 %. The US being the largest economy in the world can handle its debt as compared to other developing economies. Studies have shown that developed nations are far more adept at dealing with debt situations than a developing economy.