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Free InquiryIn 1984 and 1985, the small Latin American country of Bolivia experienced hyperinflation. Below are some key macroeconomic data from those years:
Macroeconomic Data for Bolivia, April 1984 – October 1985
Month Money Supply Price Level (Relative to Exchange Rate (Pesos per
(Billions of Pesos) 1982 Average = 1) Dolar)
1984
April 270 21.1 3,576
May 330 31.1 3,512
June 440 32.3 3,342
July 599 34.0 3,570
August 718 39.1 7,038
September 889 53.7 13,685
October 1,194 85.5 15,205
November 1,495 112.4 18,469
December 3,296 180.9 24,515
1985
January 4,630 305.3 73,016
February 6,455 863.3 141,101
March 9,089 1,078.6 128,137
April 12,885 1,205.7 167,428
May 21,309 1,635.7 272,375
June 27,778 2,919.1 481,756
July 47,341 4,854.6 885,476
August 74,306 8,081.0 1,182,300
September 103,272 12,647.6 1,087,440
October 132,550 12,411.8 1,120,210
Do the Money supply, price level, and Exchange rate against the U.S dollar move broadly as you would expect? Explain.
Calculate the percent changes in the general price level and price of the dollar betwwen April 1984 and July 1985. How do these compare to each other and to the percent increase in the Money supply? Can you explain the results?
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