Mid-Semester Japanese Economy

A borrower who takes out a loan usually has better information about the potential returns and risks of the investment projects he plans to undertake than the lender. This inequality of information is called​

• asymmetric information

• Adverse selection

• Noncollateralized Risk

• Moral Hazard

Answer explanation

The situation described is an example of asymmetric information, where the borrower has more knowledge about the investment's risks and returns than the lender, leading to potential issues in the loan agreement.

Money is

• always based on a precious metal like gold or silver

• a flow of earnings per unit of time

• anything that is generally accepted in payment for goods and services or in the repayment of debt

• a total collection of pieces of property that are a store of value

Answer explanation

The correct answer defines money as anything generally accepted for goods, services, or debt repayment. This broad definition encompasses various forms of money, unlike the other options that are too restrictive or inaccurate.

Choose all correct statements

• Money in a broad sense is mostly a kind of digital currency

• A central bank will be able to circulate banknotes just by starting the issuance of banknotes with automatic establishment of general acceptability of banknotes

• Looking bank at human history, a currency circulates without a central bank

• Yen (or other currencies) will still function as a unit of account in a totally cashless economy

Answer explanation

The correct statements highlight that money is increasingly digital, historical currencies circulated without central banks, and traditional currencies like Yen can still serve as units of account in a cashless economy.

What is a seigniorage?

• Fess charged by financial institutions for withdrawing banknotes

• Income from financial assets held in exchange for the issue of banknotes

• Central banks do not profit from currency issuance

• The difference between the face value of a banknote and the cost of printing it

Answer explanation

Seigniorage refers to the income generated from financial assets in exchange for issuing banknotes. This includes the profit made from the difference between the face value of the currency and its production cost.

What is the control variable for a central bank in implementing monetary policy in normal time?

• money stock

• long-term government bond rate

• monetary base

• policy interest rate

Answer explanation

The control variable for a central bank in normal monetary policy is the policy interest rate. It influences borrowing costs and overall economic activity, making it a key tool for managing monetary conditions.

Which of the following increases when the economy is in the contractionary phase?

• Economic growth rate

• Inflation rate

• Household Income

• Unemployment rate

Answer explanation

During the contractionary phase of the economy, businesses reduce production, leading to layoffs and higher unemployment. Thus, the unemployment rate increases, while economic growth, inflation, and household income typically decrease.

Which of the following is consistent with a 5% increase in nominal GDP? Select all the correct choices

• Real GDP growth rate= 4%/GDP deflator inflation rate= -1%

• Real GDP growth rate= 8%/GDP deflator inflation rate= -3%

• Real GDP growth rate= 2%/GDP deflator inflation rate= 3%

• Real GDP growth rate= -2%/GDP deflator inflation rate= 7%

• Real GDP growth rate= -8%/GDP deflator inflation rate= 3%

Answer explanation

A 5% increase in nominal GDP can occur with a combination of real GDP growth and inflation. The correct choices show scenarios where the sum of real GDP growth and inflation aligns with a 5% nominal increase.

You have an investment opportunity to make your money double within 10 years. How high is the expected minimum return for this investment opportunity?

• 5%

• 7%

• 2%

• 10%

Answer explanation

To double your investment in 10 years, you can use the Rule of 72, which states that you divide 72 by the expected return rate. Thus, 72/10 = 7.2%, indicating the minimum expected return is approximately 7%, making it the correct choice.

Which term corresponds best to the situation that general prices continue to fall for a considerable period of time

• Stagflation

• Disinflation

• Inflation

• Deflation

Answer explanation

Deflation refers to a situation where general prices continue to fall over a considerable period. This contrasts with inflation, where prices rise, and disinflation, which is a slowdown in the rate of inflation.

Using the information below, compute the consumer price index for 2021.

The consumer price index for 2020 for the base year is equal to 100

The base year's basket for 2020 contains 500 sodas, 200 pizzas.

Soda prices increases from 100 yen to 120 yen in a year

Pizza prices increases form 250 yen to 300 yen in a year

• 100

• 150

• 120

• 110

Answer explanation

To calculate the CPI for 2021, we find the total cost of the basket in 2021. Sodas cost 120 yen (500 sodas = 60,000 yen) and pizzas cost 300 yen (200 pizzas = 60,000 yen). Total cost = 120,000 yen. CPI = (120,000 / 100,000) * 100 = 120.