Question

i don't need copy paste and irrelevant answers.i posted 10 times before all experts posted copy paste and irrelevant answers.please provide me only correct and relevant answers.thank you

4. [30] The Financial Times recently reported that, “The Bank of Japan kept interest rates on hold today but lowered its inflation expectations for the 2019 fiscal year. The BoJ kept its short-term interest rate target at minus 0.1%, in a seven to two vote, and reaffirmed its plan of buying Japanese government bonds to maintain yield on the 10-year note at around 0 %. In its quarterly outlook report, the bank also lowered its forecast for core inflation …. Meanwhile, official data showed today that Japan's exports in December fell the most in more than two years, dragged by plummeting shipments to China and regional markets as weak global demand and U.S.-Sino trade frictions take their toll on the economy. Exports in December fell 3.8% from a year earlier, bigger than a 1.9% drop expected by economists.” For the purposes of this question, assume that the Bank of Japan (Japan’s central bank) has objectives similar to the US Federal Reserve.

a. [5 points] Based on the information in the quote above, what are your expectations regarding the Bank of Japan’s monetary policy in 2019? Please select one response.

Increase money supply                        Decrease money supply                       Leave money supply unchanged

b. [5] Please explain briefly.

c. [5] How would you expect the monetary policy you forecast in part a. to affect the exchange rate of the Yen? Please select one response.

            Yen appreciate             Yen depreciate             Yen unchanged

d. [5] Please explain briefly.

e. [5] How would the exchange rate impact you forecast in part c. affect companies that produce in Japan and export? Please select one response.

Help                 Hurt                 No affect

f. [5] Please explain briefly.

5. [10] A recent issue of the Economist magazine reports that the Netherlands has a current account surplus of 10.1% of GDP.

a. [5 points] What would you expect to be true regarding investors’ perceptions of the attractiveness of investing in assets in the Netherlands relative to assets in other countries? Please select one response and explain in 1-2 sentences.

More attractive                         Less attractive                          Similar attractiveness

b. [5 points] Over the past decade, there have been repeated calls by policy-makers to reduce “global imbalances” (current account deficits and current account surpluses). Assume the Netherlands reduced its current account surplus. What would you expect to happen to private investment in the Netherlands as a result? Please explain in 1-2 sentences.

Answer 1

4. a) Increase money supply

b) The statement says that Japan reaffirmed its stance of buying Government bonds. This means BoJ wants to infuse money into the economy. By buying bonds, it is injecting money into the economy. So, increase in money supply is my expectation of BoJ's Monetary Policy 2019

c) Yen unchanged

d) Increase in money supply results in Depreciation of exchange rate ( depreciation of currency) usually but not in our case.

This happens because of liquidity trap. (Diagram follows IS-LM framework of keynes)

MS: initial money supply , MS' : Increased money supply , r* : low interest rate which does not change.

In case of Japan as can be seen from the report, interest rate is close to 0% .As, interest rate is not affected or changed , there is no outflow of money and exchange rate doesn't fall and Yen doesn't depreciate.

Another reason could be the fact that Japan's currency is strong as compared to other countries. (This could also explain fall in exports for Japan)

e) No effect.

f) As already mentioned above, because of Yen not depreciating, Exports would not change.

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5

a) Because Netherlands has a current account surplus, it means that its assets are more than its liabilities. This means currency of Netherlands is flowing out of its economy and going to other countries. A possible reason could be that interest rates are low in Netherlands in relative to other countries failing to get people to invest because they are getting higher returns elsewhere. It could also be the case that the currency of Netherlands is not strong prompting more exports than imports resulting in current account surplus. So,assets in Netherlands are less attractive.

b) If Netherlands is able to reduce its current account surplus, then Private investment is to go up because of the reason explained above.