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Average M2 growth for Japan during the 1980s was 10%. Between 1989 and 1992, average M2 growth fe...

Average M2 growth for Japan during the 1980s was 10%. Between 1989 and 1992, average M2 growth fell to 3%.

a) Graphically illustrate and explain the immediate impact of this event on short-run output, inflation, and the unemployment rate for Japan using the AS/AD model.

b) As M2 growth remained low in Japan, what was the ultimate medium-run impact of this event on short-run output, inflation, and the unemployment rate for Japan?

c) Since about 2010, average annual M2 growth in Japan has increased to 5%, but velocity has fallen by 2%. Graphically illustrate and explain the immediate and medium-run impact of this change on short-run output,inflation, and the unemployment rate for Japan.

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