During the early 1990s, Japan experienced deflation and real GDP was below potential GDP. Draw a...

During the early 1990s, Japan experienced deflation and real GDP was below potential GDP. Draw a diagram showing the situation in Japan. Suppose the Japanese central bank decided that it had to reinflate and set a target inflation rate of 2 percent. How would it accomplish this? Show the short-run, medium-run, and long-run effects.

Expert Solution

Rahul Sunny answered 2 years ago

The 1990s were characterized as the “lost decade” for Japan. Growth in per-capita GDP was very...

The 1990s were characterized as the “lost decade” for Japan. Growth in per-capita GDP was very low as the economy stagnated. The IS-LM model played a key role in the economist’s debates. This question is about trying to understand which policy the government should use to try to pull Japan out of a recession. 1. Interest rates were extremely low in Japan at this time. When interest rates get close to zero, the demand for money is extremely high (say...

TRUE OR FALSE a. When potential real GDP is equal to actual real GDP, there is...

TRUE OR FALSE a. When potential real GDP is equal to actual real GDP, there is no unemployment. b. A significant increase in wages will shift aggregate supply curve to the right in the short run. c. When the government decided to reduce their spending, then the aggregate supply curve will decrease or shift to the left in the short run. d. If the central Bank wants to expand aggregate demand, it can increase the money supply, which would increase...

Below, you are provided with a graph that depicts how Potential GDP and Real GDP change over time.

Below, you are provided with a graph that depicts how Potential GDP and Real GDP change over time. You will-use this graph to identify peaks, troughs, expansionary periods, and recessionary periods along the business cycle. Part 1: Complete the statement below with A, B, C, or D. The economy depicted above is at a peak along the business cycle at Point _______ Part 2: Complete the statement below with A, B, C, or D. The economy depicted above is at a trough along the business...

Monetary policy in Japan since the early 1990s has had limited effectiveness even though the Bank...

Monetary policy in Japan since the early 1990s has had limited effectiveness even though the Bank of Japan lowered real interest rates to almost zero, because deflation (a negative rate of inflation) kept nominal interest rates up. nominal interest rates to almost zero, because deflation (a negative rate of inflation) kept real interest rates up. real interest rates to almost zero, because a positive rate of inflation kept nominal interest rates up. nominal interest rates to almost zero, because a...

The effectiveness of fiscal policy in closing gaps between potential real GDP and real GDP is...

The effectiveness of fiscal policy in closing gaps between potential real GDP and real GDP is diminished by: a) lags (inside and outside); and b) crowding out. Explain what inside and outside lags are, and explain what crowding is. Be sure to explain how the lags and crowding out reduce the effectiveness of fiscal policy.

Canada has been experiencing sluggish economic growth recently, so that real GDP is below potential GDP....

Canada has been experiencing sluggish economic growth recently, so that real GDP is below potential GDP. Identify the specific type of output gap that currently exists in Canada. Identify ONE specific demand side policy the government could pursue to remedy this output gap. Briefly explain how this policy would move the economy to full employment within the context of the AD-AS model.

24. If Japan had followed a Taylor Rule during the 1990s, would they have avoided their...

24. If Japan had followed a Taylor Rule during the 1990s, would they have avoided their “lost decade”?

Until the early 1990s, the U.S. government emphasized GNP rather than GDP as the fundamental measure...

Until the early 1990s, the U.S. government emphasized GNP rather than GDP as the fundamental measure of economic well-being. Which measure should the government prefer if it cares most about the total income of Americans? Which measure should it prefer if it cares most about the total amount of economic activity occurring in the United States?

What was the business environment of enron during the late 1990s and early 2000s? And, how...

What was the business environment of enron during the late 1990s and early 2000s? And, how did this environment incentive the numerous frauds that happened during this period?

Consider the following table for the U.S. Year Potential Real GDP Real GDP Price Level Federal...

Consider the following table for the U.S. Year Potential Real GDP Real GDP Price Level Federal Funds Rate 2006 $15.3 trillion $15.3 trillion 90.1 5.0% 2007 $15.6 trillion $15.6 trillion 92.5 5.0% 2008 $15.9 trillion $15.6 trillion 94.3 1.9% 2009 $16.1 trillion $15.2 trillion 95.0 0.2% 2010 $16.3 trillion $15.6 trillion 96.1 0.2% 2011 $16.5 trillion $15.8 trillion 98.1 0.1% 2012 $16.7 trillion $16.2 trillion 100.0 0.1% 2013 $17.0 trillion $16.5 trillion 101.6 0.1% 2014 $17.3 trillion $16.9 trillion 103.6...

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