Lecture Extender Examples 551
Chapter 16 Domestic and International Dimensions
of Monetary Policy
The Bank of Japan Forgets the Quantity Theory of Money
From 1999 through 2004, nominal interest rates in Japan were very close to zero. During the same period,
. According to officials at the Bank of Japan, the Japanese central bank, the
inability to push interest rates any lower meant that monetary policy could do little to raise aggregate
demand. Thus, the officials argued, the Bank of Japan could not prevent J
Changes M1 and M2 Become Less Useful to the Federal Reserve
Banks and savings and loans were allowed to issue NOW accounts nationwide in 1981. An unexpected
result was that the relationship between the growth of M1 and GDP broke down. The reason was that
customers of depository institutions transferred funds from savings accounts, which are part of M2, into
interest-bearing NOW accounts, which are part of M1. The Fed stopped using the growth of M1 as a
The Choice between Cash and Savings Accounts in Colombia
552 Miller Economics Today, Nineteenth Edition
In countries with high inflation rates, nominal interest rates are also high. Recall that the nominal interest
rate equals the real interest rate plus the expected rate of inflation. Colombia is one country that has
consistently high rates of inflation. Consequently, its depository institutions usually offer high nominal
The Global Financial Crisis
In 2008, the financial markets and banking system of the United States nearly collapsed completely as
a result of the issuance and securitization of subprime mortgages. When the housing market began to
collapse in 2008, defaults on subprime mortgages began to undermine the value of the mortgage-backed
securities, and the crisis spread from the United States to the major financial markets in the rest of the
Predict Monetary Policy Correctly and Win a $10,000 Scholarship
Reserve Board and Citibank. More than 200 high school students throughout the country participate.
Each school has a five-member team. Each team recommends whether the Fed ought to raise interest
rates, lower them, or leave them unchanged.
Lecture Extender Examples 553
Declaring Large-Denomination Rubles Worthless
Just before the disintegration of the Soviet Union, it provided a type of experiment of the quantity theory
of money. In early 1991, the Soviet government declared all 50 and 100 ruble currency notes worthless.
Citizens had only three days to convert these large notes into smaller-denomination notes. Many citizens
found that deadline impossible to meet. The intended total reduction in large-denomination ruble notes