In 2008, Japan's economy suffered as world economies slowed. If ...

[nramada]

In 2008, Japan's economy suffered as world economies slowed. If authorities in Japan followed the monetarist viewpoint, ________ to bring the economy back to full employment.
 
  A) taxes would be decreased and the money supply should be increased
  B) nothing should be done
  C) aggregate supply would shift leftward
  D) the money supply would be kept growing at a steady pace

Question 2

In the foreign exchange market, how does the quantity of U.S. dollars demanded respond to a change in the U.S. exchange rate? Why is there this response?
 
  What will be an ideal response?

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Answer to Question 1

D

Answer to Question 2

If the U.S. exchange rate falls, the quantity of U.S. dollars demanded increases for two reasons. The first is the exports effect. If the exchange rate falls, then U.S. goods and services are cheaper in foreign nations. These nations increase the amount of U.S. exports they demand. As exports increase the quantity of dollars demanded increases so that the importing nations can pay for the exports. The second reason the quantity of U.S. dollars demanded increases is the expected profit effect. In general, the greater the expected profit from holding U.S. dollars, the greater is the quantity demanded of U.S. dollars. When the exchange rate falls, more people will believe that it will rise again in the future and so more people want to hold U.S. dollars. As a result, the quantity of U.S. dollars demanded increases.

[nramada]

TYSM

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