Presently, most countries adopt financial policies in order to improve their economic and social conditions. However, those policies differ as there is not a policy that could be applied for every country. Monetary policy is one of the most widely used ones. The policy is usually implemented by the central bank. It uses an interest rate transmission mechanism in order to achieve its aims. According to Lipsey (2007), one of the main aims of the central bank is to control inflation. Although in theory the monetary policy is likely to succeed, in real life it is not always the case as it was with Japan in 1990s.
The central bank can introduce either expansionary or contractionary monetary policies. Interest rate transmission mechanism is used during both of them. The aim of the expansionary monetary policy is to increase the national income through decreasing the interest rate. Firstly, central bank increases money supply (MS). It can engage in open market operations. For example, central bank can increase MS through buying bonds from the market. Interest rate and demand for money (Md) have negative relationship. Therefore, the more is the interest rate the less is the demand for money. The key reason for that is the opportunity cost of holding money. If the interest rate is high enough consumers are willing to save money. However, if the interest rate is low consumers are likely to spend money on goods and services. Therefore, as MS increases, Md increases as well. As a result, the interest rate decreases. These can be observed on the diagram 1.
The initial equilibrium point is E1 (the intersection of MS1, i1, and Md1). The new equilibrium point is E2. However, it should be mentioned that all other variables are assumed to be unch...
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...l for expanding the economy. In theory, interest rate transmission mechanism is likely to work. However, this is not always the case. During the Japanese recession in 1990s the monetary policies has failed. Consequently, this led to the reconsideration of the policy’s effectiveness. There is less doubt that the policy can greatly assist in boosting the economy. However, all the other variables should be considered before policy implementation. This might help to avoid severe recessions as the one in Japan.
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Lipsey, R., and A. Chrystal. 2007. Economics. 11th ed. Oxford: Oxford University Press.
Monetary Policy is another policy used in Keynesianism which is a list of protocols designed to regulate the economy by setting the amount of money that is in circulation and controlled interest levels. The Federal Reserve system, also known as the central banking system in the U.S., which holds control of this policy. Monetary policy has three tools used by the Federal Reserve to enforce this policy. Reserve Requirement is the first tool that determines the lowest amount of money a bank must possess and is not able to lend out. The second way to enforce monetary policy is by using the discount rate or the interest rate a bank will charge.
Open market operations directly affect the money supply through buying short-term government bonds (to expand money supply) or selling them (to contract it). Benchmark interest rates, such as the LIBOR and the Fed funds rate, affect the demand for money by raising or lowering the cost to borrow—in essence, money's price. When borrowing is cheap, firms will take on more debt to invest in hiring and expansion; consumers will make larger, long-term purchases with cheap credit; and savers will have more incentive to invest their money in stocks or other assets, rather than earn very little—and perhaps lose money in real terms—through savings accounts. Policy makers also manage risk in the banking system by mandating the reserves that banks must keep on hand. Higher reserve requirements put a damper on lending and rein in inflation.
Most American citizens remember December 7, 1941 and the significance that the incidents of that day had. The attack on Pearl Harbor was a shock to the United States of America and it engaged our country in the Second World War of that century (Pearl, 2009). Unfortunately, due to that incident, many Americans harbor many negative feelings and attitudes towards the country of Japan. While this is an understandable sentiment, it is unnecessary, because Japan is an influence on not on the United States but the entire world. Throughout this paper, we will look at the country of Japan as many have never viewed them before. Their actions of the past are just that, the past. Japan is a thriving and successful country within our environment and it is in our best interest to understand that country better. Japan, as a culture, is the
Moreover, the context in which this book was written demonstrates that Japan is going through the financial affluence as well as the greatest boom since it is during the postwar period, much of the financial affluence had been caused by the consumerism in Japan. The author seem to be biased on this theme, despite the benefits consumerism has had on Japan, Yoshimoto goes ahead to give it a negative
In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).
Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) taking up measures to regulate the supply of money and the rates of interest. It involves controlling money in the economy to promote economic growth and stability by creating relatively stable prices and low unemployment. A monetary policy mainly deals with the supply of money, availability of money, cost of money and the rate of interest to attain a set of objectives aiming towards growth and stability of the economy. Here are some of the monetary policy tools:
The term Monetary policy refers to the method through which a country’s monetary authority, such as the Federal Reserve or the Bank of England control money supply for the aim of promoting economic stability and growth and is primarily achieved by the targeting of various interest rates. Monetary policy may be either contractionary or expansionary whereby a contractionary policy reduces the money supply, reduces the rate at which money is supplied or sets about an increase in interest rates. Expansionary policies on the other hand increase the supply of money or lower the interest rates. Interest rates may also be referred to as tight if their aim is to reduce inflation; neutral, if their aim is neither inflation reduction nor growth stimulation; or, accommodative, if aimed at stimulating growth. Monetary policies have a great impact on the economic stability of a country and if not well formulated, may lead to economic calamities (Reinhart & Rogoff, 2013). The current monetary policy of the United States Federal Reserve while being accommodative and expansionary so as to stimulate growth after the 2008 recession, will lead to an economic pitfall if maintained in its current state. This paper will examine this current policy, its strengths and weaknesses as well as recommendations that will ensure economic stability.
In conclusion, I tried to explain what experienced in Japan during the first years of rapid economic growth in terms of its social consequences. According to my argument, I tried to show imbalances which occurred with economic development in post- war Japan. In other words, economic development cannot appear as linear social development. Post- war Japan has witnessed positive and negative social consequences after implementing economic recovery. Therefore, we can say that society cannot always embrace economic development positively. Economic transformation brings its own waves and thus society fluctuates regarding its embracement. Japanese society received its share with this economic recovery during post- war period.
The Japanese Economy & nbsp;& nbsp;& nbsp;& nbsp;& nbsp; The prewar economy of Japan was a Socialist economy and the country was ruled by an emperor up to WW2 and after WW2 it started to lean towards a mixed market economy until what it is today, although its government is Socialist it is leaning towards a mixed market economy. & nbsp; The Japanese economy is a mixed economy that leans towards market, it is like this because almost all businesses are run by private corporations or people. and that is the market of the economy. And the reason that they are thriving and are so competitive is because of the trade tariffs and quotas that the government has in place. These regulations include heavy taxes on some products.
Stockwin, J. A. Chapter 7: Who Runs Japan? In Governing Japan: Divided Politics in a Resurgent Economy (4th ed., pp. 46-72). London, The United Kingdom: Blackwell.
According to federalreserveeducation.org, the term "monetary policy" refers to what the Federal Reserve, the nation 's central bank, does to influence the amount of money and credit in the U.S. economy, (n d). The tools used are diverse but the main ones are:
Monetary Policy involves using interest rates or changes to money supply to influence the levels of consumer spending and Aggregate Demand.
Economic recovery of Japan after Second World War can be divided into periods. As Kenichi Ohno states that 1945-1947 recovery period, Korean War in between 1950-1953, after this war Japanese economy had entered into high growth period and it basically lasted until 1970s. Throughout those years Japanese government attempted to achieve economic development with the implementing economic control and economic planning. At the second part of my research I will mention about economic development in order to have general framework what policies were implemented.
O'Bryan, Scott. 2009. Growth Idea : Purpose and Prosperity in Postwar Japan. University of Hawaii Press, 2009. eBook Collection (EBSCOhost), EBSCOhost (accessed December 4, 2011).
Japan’s rising yen and the decline of the US dollar, East Asia Forum, 2011. Available at: