Answer to Question #61231 in Macroeconomics for Shaggy

Question

"At the moment, the market is completely ignoring things like record US trade deficits and the widening current account deficit. It is also largely ignoring the possibility of Federal Reserve rate cuts. Traders and investors are instead focusing only on the fiscal and monetary easing in Japan and monetary easing in Germany."

a. In what way is fiscal easing in Japan relevant here?

b. In what way is monetary easing in Germany relevant here?

Answer 1

a.
The Japanese national economy has been experiencing deflation for the recent decades. Deflation is the greatest obstacle for economic development and growth of the country. As a result, repeat of Japanese ‘economic miracle’ is impossible nowadays. That is why the local government uses all available instruments to boost internal economic development via fiscal and monetary easing. It is going to boost economic growth of the country and take it back to the leading global economic conditions. Of course, it is a positive sign for the global financial markets.
b.
Monetary easing in Germany has the same character as in the previous question. Monetary easing in Germany should stimulate its national economy. German economy is a driver of the whole EU economy. Once again such step of the local government is a good sign for the international financial markets.