Reference no: EM131096195

The fiscal deficit of the country Zoldova has been increasing at an alarming rate for the decade. One of the major reasons for the worsening fiscal deficit has been indiscriminate government spending which had to be financed by printing more currency. The continuous increase in money supply to finance wasteful government expenditure caused the inflation rate to hit triple digits. With rising instability in the country, the central bank had to redenominate its currency earlier this year. As a result, currency worth 10,000 Zoldovan dollars last year are now worth only 100 Zoldovan dollars. In spite of the efforts, the value of the currency kept falling. The governor of the Zoldovan central bank, Martin Ntini, is of the opinion that the growth of money supply needs to be curbed because printing money was the source of the problem. However, even after restricting money supply growth, they were unable to prevent the value of the currency from falling further. Which of the following, if true, can explain this outcome? A. Banks in the country started charging very high interest on loans. B. the government instituted price controls in am attempt to control inflation. C. People in Zoldova statred using the U.S dollar for transactions and were unwillinh to switch back to the domestic currency. D. There were widespread protests against existing government policies and people demanded fresh elections earlier this year. E. the IMF recently extended a loan to Zoldava condition that the government exercise fiscal prudence.