In 1992 the Central Bank of Japan resisted implementing an expansionary monetary policy because
A)it believed that output had been beyond its full-employment level in Japan during the late 1980s and early 1990s.
B)it followed the real business cycle approach.
C)it believed that the only way to cure Japan's economic problems was by reducing the large government budget deficit the country was suffering from.
D)it believed that the only way to cure Japan's economic problems was by reducing the large balance of trade deficit the country was suffering from.

Question

Quizplus · Accepted Answer

The Central Bank of Japan believed that the output had been beyond its full-employment level during the late 1980s and early 1990s. This implies that the economy was already producing at its maximum potential and implementing an expansionary monetary policy would only lead to inflation without increasing the real output. Therefore, the central bank resisted implementing an expansionary monetary policy.

In 1992 the Central Bank of Japan Resisted Implementing an Expansionary