The following is from an article written by Michelle Carmody in The Conversation on Venezuela:
“Imagine going to the store and finding that nothing has a price tag on it. Instead you take it to the cashier and they calculate the price. What you pay could be twice as much, or more, than an hour earlier. Many stores won’t even accept the national currency, instead favouring foreign currencies…
… By 2014 the value of Venezuela’s currency, the bolívar, and the prosperity of the Venezuelan economy, was highly dependent on oil exports. More than 90% of the country’s export earnings came from oil. Then the global price of oil dropped. Foreign demand for the bolívar to buy Venezuelan oil crashed. As the currency’s value fell, the cost of imported goods rose. The Venezuelan economy went into crisis.
The solution of Venezuela’s new president Nicolas Maduro was to print more money.”
a) Referring to the three functions of money, why might Venezuelans want to use the US dollar instead of the bolivar?
b) What is the equation of exchange?
c) Using the equation of exchange and the quantity theory of money, what might “printing money” do in the long-run when accompanied by structurally low GDP growth?