Between January 1985 and January 1990, the NIKKEI, the Japanese

question 78

Essay

Between January 1985 and January 1990, the NIKKEI, the Japanese stock index, rose an astounding 217 percent. Tokyo housing prices had jumped to $93,000 per square foot. Then stock and housing prices plummeted. The NIKKEI finally bottomed out in April 2003 and had lost about 79 percent of its value from January 1990. Explain the macroeconomic effects of this so-called Lost Decade in Japan. During this period, Japan experienced a deflationary spiral; explain. If you were the chairman of the Bank of Japan, what prescription would you apply? If you were the government of Japan, what would you do? Compare this to the United States' Great Recession.

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Definitions:

Present Value Analysis

A method of valuing a future cash flow to determine its worth at the present time, taking into account the time value of money.

Capital Investment

Money expended by a business to purchase or improve tangible assets like land, factories, or machinery.

Investment Funds

These are pooled funds from various investors used to acquire securities and other investment assets, managed by financial professionals.

Present Value Index

An index computed by dividing the total present value of the net cash flow to be received from a proposed capital investment by the amount to be invested.