How was Bolivia - hyperinflation was back. Later on, they...

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1. How was Bolivia’s hyperinflation problem solved? Did this become a permanent solution to their macroeconomic stability? Why? Bolivia’s hyperinflation problem was solved with a sharp increase in their oil prices, since the low price in their oil was destroying their budget. As oil prices soared, the budget deficit closed and this led to a stabilization of the exchange rate (stabilization of peso-US dollar). However, later on, this was not a permanent solution. Bolivia’s tin prices collapsed, they went bankrupt, and
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Unformatted text preview: hyperinflation was back. Later on, they had to sell their foreign exchanges back into the currency market in return for the newly issued pesos. The exchange rate stabilized again and the currency started to strengthen. They had 4 obstacles before stabilization: 1) Collapse in tin prices ate away their stability; 2) Government was bankrupt, 3) Tax reform, 4) Emergency social fund to address the urgent social conditions of the country....
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