Yen Sinks After Japan’s PM Resigns

Answer the following questions to check your understanding of the story.

1) What is “looser” monetary policy and what is its effect?

When the central bank implements “looser” monetary policy, ________________.

a) interest rates rise, real GDP decreases, and the price level rises

b) the demand for money increases, real GDP increases, and the price level rises

c) the quantity of money increases with no change in interest rates, real GDP increases, and the price level falls

d) the quantity of money increases and interest rates fall, real GDP increases, and the price level rises

2) How do expectations of the Bank of Japan pursuing looser monetary policies influence the expected future exchange rate of the yen?

The expected future exchange rate of the yen __________.

a) falls

b) remains unchanged

c) might rise, fall, or remain unchanged

d) rises

3) Why did the yen depreciate?

The yen depreciated because the expected profit from holding yen fell, which ___________ the demand for yen and ___________ the supply of yen.

a) increased; decreased

b) decreased; decreased

c) increased; increased

d) decreased; increased

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