How will the open market operations affect the interest rate

Reference no: EM133336682

Question: Suppose that Japan is experiencing an episode of deflation, in which prices are falling at a rate of around 2% a year.
A. If the central bank of Japan decides to use monetary policy to combat deflation, what action should it take? Use an AD/AS diagram to illustrate your idea.
B. If the central bank of Japan uses open market operations to fight deflation, what will it do?
C. How will the open market operations affect the interest rate?
D. How will the change in interest rate affect private investment?
E. How will the change in private investment affect aggregate demand?
F. What two other types of monetary policy could the central bank of Japan use instead of open market operations to achieve its goals?

Reference no: EM133336682

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