How could an increase in the money supply have caused the Japanese price level to rise...

How could an increase in the money supply have caused the Japanese price level to rise even though nominal interest rates temporarily remained close to zero?

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=> ANSWER ::

-> When Japanese Central Bank Increase The Money Supply In The Economy It Cause Liquidity In The Market So People Have More Money to spend In Order To Fulfill Their Needs. They Use The Monetary Or Fiscal Tools To Increase The Money Supply In The Market

-> Nominal Interest Rate Is Temporarily Closed To Zero It Means Borrowing Money Is More Easy For People From The Bank When Money supply increase The New money Arrive In Banking System So Bank Provide More Money In the Form Of Loans to People And People Take More Loans Because Of The Zero Nominal Interest rate So It Increase The Aggregate Demand in The Market So when Central Bank Increase The Money The Value Of Money Decrease And It Leads to increase In The Price Of Japanese Market.

-> So We Assume That When Money supply People Are More Trying Borrow Money Because of The Low Nominal Interest rate So Increase Money Supply Leads to Rise In The Inflation So Price Level increase In The Country

Rahul Sunny answered 1 year ago

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