Question

Q1:

Zimbabwe abandoned its own currency (the Zimbabwean Dollar) after experiencing hyperinflation in 2008 and adopted the US Dollar as its legal tender. The money supply in the country therefore depends totally on imports and exports. In 2015 the country experienced a severe drought which caused both food and export crops (mainly tobacco) to fail. As a result, the country’s food imports increased dramatically while its exports declined. The government insisted that the economy grew, but international economic observers all agree that the size of Zimbabwe's economy remained the same in 2015. Foreign investment, through which US dollars can flow into Zimbabwe, was negligible in 2015. As a consequence of these events, what do you think happened to the general price level in 2015. Explain. You need to include the two crucial factors for changes in the general price level in your essay. Focus on the development in 2015 and DO NOT discuss the hyperinflation in 2008, which is not the topic of this assignment. You do not need to discuss why the economy of Zimbabwe did not shrink. There are economic sectors other than agriculture and their growth compensated the decline in agriculture. 3 points.

Q2:

Santa 2.0

Recall Santa 1.0. What would happen to the general price level if everybody who received cash from Santa put all the money under the mattress and did not spend it at all? Assume the size of the economy did not change.

Answer 1

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Summary of Answer :-

1) Here explains the impact on price due to international trade.

2) As money not moving freely in economy , impact on economy.

3) Concusion on impact of dollar currency.