Japan's central bank, the Bank of Japan, has an inflation target of -0.25% per year (or rather "Deflation Target"). According to the Quantity Theory of Money, by how much must the Bank of Japan grow the money stock in order to hit its inflation target? A) The Bank of Japan must increase the money stock by 0.25% per year. B) The Bank of Japan must decrease the money stock by 0.25% per year. C) The Bank of Japan must increase the money stock by 0.25% per month. D) The Bank of Japan must decrease the money stock by 0.25% per month.
Japan's central bank, the Bank of Japan, has an inflation target of -0.25% per year (or rather "Deflation Target"). According to the Quantity Theory of Money, by how much must the Bank of Japan grow the money stock in order to hit its inflation target? A) The Bank of Japan must increase the money stock by 0.25% per year. B) The Bank of Japan must decrease the money stock by 0.25% per year. C) The Bank of Japan must increase the money stock by 0.25% per month. D) The Bank of Japan must decrease the money stock by 0.25% per month.
Chapter15: Monetary Theory And Policy
Section: Chapter Questions
Problem 3.7P
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Japan's central bank, the Bank of Japan, has an inflation target of -0.25% per year (or rather "Deflation Target"). According to the Quantity Theory of Money, by how much must the Bank of Japan grow the money stock in order to hit its inflation target?
A) The Bank of Japan must increase the money stock by 0.25% per year.
B) The Bank of Japan must decrease the money stock by 0.25% per year.
C) The Bank of Japan must increase the money stock by 0.25% per month.
D) The Bank of Japan must decrease the money stock by 0.25% per month.
Expert Solution
Step 1
Inflation refers to the situation of increasing price level in the economy.
Deflation refers to the situation of decreasing price level in the economy.
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