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Chapter 18: Q1QT (page 638)

Question: Why would Abenomics lead to a weaker yen?

Short Answer

Expert verified

Abenomics would lead to an increase in the money supply in Japan, which weakens the yen.

Step by step solution

01

Explanation

Abenomics would lead to an increase in the monetary base, i.e., the citizen of Japan will have more money in their hands. As the supply of money increases, the demand for goods and services will increase and the imports will also increase.

If Japan imports from the U.S. the demand for import increases. Consequently the demand for the U.S. dollar will also increase.Thus, the U.S. dollar will appreciate, and the yen will depreciate. Hence, with the increase in money supply, the yen becomes weaker, or with Abenomics, the yen becomes weaker.

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Most popular questions from this chapter

Draw a diagram, similar to Figure 18-7, representing the foreign exchange situation of China when it kept the exchange rate fixed. Express the exchange rate as U.S. dollars per yuan. Then show with a diagram how each of the following policy changes will eliminate the disequilibrium in the market.

  1. China no longer fixes its exchange rate and allows it to float freely.
  2. Placing restrictions on foreigners who want to invest in China
  3. Removing restrictions on Chinese who want to invest abroad
  4. Imposing taxes on Chinese exports, such as shipments of clothing, that are causing a political backlash in the importing countries

Mexico discovers huge reserves of oil and starts exporting oil to the United States. Describe how this would affect the following.

  1. The nominal peso–U.S. dollar exchange rate
  2. Mexican exports to the United States of other goods and services
  3. Mexican imports from the United States of goods and services

Question: In the late 1980s Canadian economists argued that the high interest rate policies of the Bank of Canada weren't just causing high unemployment—they were also making it hard for Canadian manufacturers to compete with the United States. Explain this complaint, using our analysis of how monetary policy works under floating exchange rates.

Which of the balance of payments accounts do the following events affect?

a. Boeing, a U.S.-based company, sells a newly built airplane to China.

b. Chinese investors buy stock in Boeing from American residents.

c. A Chinese company buys a used airplane from American Airlines and ships it to China.

d. A Chinese investor who owns property in the United States buys a corporate jet, which he will keep in the United States so he can travel around America.

Question: Look at the data in Figure 18-8. Where do you see devaluations and revaluations of the franc against the mark?
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