Session 7: Quiz mod/quiz/attempt.php?attempt=671717&cmid=2041555 Q OARD GGU.EDU HELP MY COURSES Question 2 Not yet answered Points out of 1.00 Flag question The World View article titled "Deflation Still Haunts the Bank of Japan " discusses the liquidity trap situation in Japan. WORLD VIEW Deflation Still Haunts the Bank of Japan Critics Say Pledge to Raise a Money-Supply Target Hasn't Produced Results TOKYO-The Japanese central bank, which had raised hopes it would try to reflate the nation's weak economy, again faces mounting criticism that it is failing to fight the demon of deflation. The Bank of Japan said in March it would start aiming for a higher money supply, departing from the ordinary practice of targeting a key interest rate, to ease the price dedines hammering Japanese companies... In March, the bank unveiled a policy dubbed "quantitative easing," saying it would begin targeting increases in a part of the money supply-the reserve funds that private-sector banks keep at the Bank of Japan-starting with a boost to five trillion yen ($40.48 billion) from four trillion yen. The bank also said it would increase its outright purchases of long-term Japanese government bonds if necessary to top up the money supply. -Michael Williams Source: The Wall Street Journal, August 9, 2001. WALL STREET JOURNAL. Copyright 2001 by DOW JONES a COMPANY, INC. Reproduced with permission of DOW JONES & COMPANY, INC. in the format Textbook via Copyright Clearance Center. Analysis: When low (near zero) interest rates failed to spark an economy recovery, the Bank of Japan focused on increases in the money supply. Their goal was to keep the price level (P) from falling. During a liquidity trap: Select one: A. Businesses may decide not to borrow money because of poor expectations OB. Consumers may decide to save rather than spend OC. Banks may put there excess reserves into bonds rather than lend OD. All of the above