Issues in Money, Banking & Finance Essay Example | Topics and Well Written Essays - 2000 words

Issues in Money, Banking & Finance - Essay ExampleSome of the treatments that Japan has attempted in combating deflation are fiscal expansion, decrease of interest pass judgment, depreciating the Yen, bank restructuring, two rounds of quantitative easing, and Abenomics. However, with the exception of the last measure whose effect is yet unclear, the situation has not changed much with a uninterrupted economic recession reflected by its balance sheet (Botman et al, 2015 p32). This paper will explore the reasons why monetary and fiscal policy measures, as well as economic restructuring measures by Japan, have failed to end the deflationary pressures on its economy.As Japans consumption rate tax increased in 1997 followed by an economic recession and a deflationary spiral, Krugman (1999b p1) stated that Japan had entered into a liquidity trap, in which the demand for currency was increasing dramatically, while resulting increases in the add up of currency failed to effect any change s in interest rates. This assertion was an extension of liquidity trap theory advanced by Keynes, where an economys full general demand continues to decline condescension a reduction of nominal interest rates to zero with production capability being higher than the general demand. Therefore, this definition would attribute Japans deflationary spiral to inadequate effective demand in relation to consumption and investment. Although Japan kept its interest rates low, this was still not enough to stimulate consumption and investment, while expansion of currency supply by the Bank of Japan was equally ineffective (Murota & Ono, 2012 p344).Krugman (1999c p1) attributes this phenomenon to the particular that the Japanese public was more likely to save due to uncertainty about the countrys economic future, as well as fears that their income would reduce, despite having stable liquidity preference at the interest rates critical point. Therefore, the underlying factor driving this