money supply/deflation/inflation
Japan is experiencing deflation, and Bank of Japan (BoJ) announces that it will keep on increasing the money supply until it achieves positive rate of inflation. Which of the following would be the most accurate description of what is likely to follow?
a- BoJ announces a temporary increase in money supply, and we should expect to have a slight depreciation of the Yen with no significant long run changes
b- BoJ announces a permanent increase in money supply, and we should expect to have a proportional long-run depreciation of the YEN with no change in the exchange rate in the short run.
c- BoJ announces a permanent increase in money supply, and we should expect to have an immediate depreciation of the YEN because the long-run value of this currency is affected.
d- BoJ announces a temporary increase in money supply, and this policy does not have any impact on short run or long run value of the Yen
a- BoJ announces a temporary increase in money supply, and we should expect to have a slight depreciation of the Yen with no significant long run changes
b- BoJ announces a permanent increase in money supply, and we should expect to have a proportional long-run depreciation of the YEN with no change in the exchange rate in the short run.
c- BoJ announces a permanent increase in money supply, and we should expect to have an immediate depreciation of the YEN because the long-run value of this currency is affected.
d- BoJ announces a temporary increase in money supply, and this policy does not have any impact on short run or long run value of the Yen
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Original post by born_as_a_pro
Japan is experiencing deflation, and Bank of Japan (BoJ) announces that it will keep on increasing the money supply until it achieves positive rate of inflation. Which of the following would be the most accurate description of what is likely to follow?
a- BoJ announces a temporary increase in money supply, and we should expect to have a slight depreciation of the Yen with no significant long run changes
b- BoJ announces a permanent increase in money supply, and we should expect to have a proportional long-run depreciation of the YEN with no change in the exchange rate in the short run.
c- BoJ announces a permanent increase in money supply, and we should expect to have an immediate depreciation of the YEN because the long-run value of this currency is affected.
d- BoJ announces a temporary increase in money supply, and this policy does not have any impact on short run or long run value of the Yen
a- BoJ announces a temporary increase in money supply, and we should expect to have a slight depreciation of the Yen with no significant long run changes
b- BoJ announces a permanent increase in money supply, and we should expect to have a proportional long-run depreciation of the YEN with no change in the exchange rate in the short run.
c- BoJ announces a permanent increase in money supply, and we should expect to have an immediate depreciation of the YEN because the long-run value of this currency is affected.
d- BoJ announces a temporary increase in money supply, and this policy does not have any impact on short run or long run value of the Yen
I would say c. monetary policy is normally long run neutral as the price level rises and so the real exchange rate is unaffected in the long run, hence the value of the yen must fall in order for this to occur and stay at this level until the next shock.
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