Author Question: The relative price of a country's goods and services in terms of foreign goods and services is the ... (Read 115 times)

tiara099 · **on:** Jun 29, 2018

The relative price of a country's goods and services in terms of foreign goods and services is the real exchange rate.

Indicate whether the statement is true or false

Question 2

In countries that have experienced hyperinflation, what role have large government budget deficits played in causing the very high inflation rates?

What will be an ideal response?

Laurenleakan · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

TRUE

Answer to Question 2

The large government budget deficits lead to the massive increases in the money supply necessary to generate the hyperinflation. The public, especially in the developing world, will not buy the government bonds necessary to finance the large budget deficits. The central bank has had to purchase the government bonds, which has sent the money supply through the roof, leading to hyperinflation.