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https://www.economist.com/node/21653662

1.This questions is based on the article, "Signs of a slowdown," published byThe Economiston June 6, 2015. The article discusses the trends in the value of the yen and its consequences during 2012 and 2015. The average annual rate of inflation during 2013 and 2014 was 1.55 percent in both the US and Japan. Assume that the yen is the home currency so that the exchange rate is expressed in terms of US dollars per yen and the appreciation/depreciation is calculated as the percentage change of that exchange rate.

(a)The article and its chart[1]show that the yen-dollar exchange rate at the end of 2012 wase₀=1/87/$ and by the end of 2014 reachede₁= 1/120/$. By what percentage did the yen depreciate vis--vis the dollar in nominal terms in those two years? [4] By what percentage did the yen depreciate vis--vis the dollar in real terms in those two years? [3]

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(b)According to the article, what was the factor driving the depreciation of the yen against the dollar?[5]

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(c)The article points out that global trade of the main emerging markets except China and Hong Kong saw weaker exports in early 2015 compared to the situation during the same period in 2014. What were the causes of that sluggishness highlighted by the article? [7]

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(d)According to the article, in the situation prevailing in 2014 and early 2015, central banks were happy to see their currencies weaken. Why did this lead to exporting deflation to the rest of the world? [6]

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(e)Extra Points Question:The article states that "QE means that central banks are absorbing an awful lot of new government debt." How does this help keep sovereign-bond yields low? What are the potential problems that this policy may cause for the world economy? [10]

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[1]The inverted scale used in the charts of the article is a fractional scale where the vertical axis label corresponds to the denominator of the fraction. So, a label of 120 corresponds to 1/120 dollars/yen.