Moving to the Relative price variability the most obvious example is Dinh

Moving to the relative price variability the most

This preview shows page 13 - 16 out of 17 pages.

Moving to the Relative price variability, the most obvious example is Dinh coffee in Vietnam. Dinh coffee is located on Dinh Tien Hoang street and it has been opening for more than 20 years. During 20-year-time, while other coffee shops always increase their price to gain more profit, Dinh coffee keep its price constant and only raise it every February even if there was an inflation. Therefore, customers always prioritize Dinh coffee when they travel to Old Quarters to enjoy the peacefulness there and the atmosphere of the past.The high rate of customers means that Dinh coffee must spend more in allocating the ingredients and resources for making drinks.. 3.Suppose you are the economic consultant hired to provide recommendationsfor the Venezuelan economy, what changes in the monetary policies will you suggest?Identify the correct policy and explain in detail, using relevant diagrams to illustratethe desired outcome. If you have real-world examples of where this policy worked,youmayuseittofurtherstrengthenyourcase.
Background image
(3marks)Policies that Venezuela should apply immediately are unify the exchange rate and breakingthe inflation-depreciation spiral. According to Mark Weisbrot, president of Just ForeignPolicy, the best way to accomplish these is allow the currency to float. Hence, the currencywould be likely to settle around 150 to 200 Bolivares Fuertes/U.S. Dollar, which is not evennear the current black market rate. This devaluation would undoubtedly cause someinflation; however, by unifying the exchange rate, the increase in inflation is expected todisappear as well as put an end to the black market within a year (Fortune, 2016). Once the currency is starting to stabilize, lots of U.S. Dollar would be expected to float backin the country since everything is pretty much cheap for those who hold dollars. This hadhappened in Argentina in 2002, after a huge devaluation. During the next six years,Argentina managed to keep the exchange rate at a realistic level; therefore, the economyultimately grew back very fast (Fortune, 2016). Figure 10: Recovery after devaluation in Argentina (economicshelp.org)After that, Venezuela’s government should put out a system of cash aid in different places sothe citizens can afford to buy basic necessities like food and drink as well as focus ineliminate the rationing and price control regulations, which plays a major role in destructingthe market (The Week, 2016).To conclude, by unifying the exchange rate and breaking the inflation-depreciation spiral, itwill put an end to the on going balance of payments crises as well as prevent having to loseprecious reserves during protecting an overvalued currency. This is will also eventually getrid of the corruption that comes from the overvalued official exchange rates that NicolásMaduro has created (Fortune, 2016).
Background image
Reference ListWorld Bank 2016, “Unemployment, total (% of total labor force) (modeled ILOestimate)”,,<?end=2014&start=2008&view=chart>.Trading Economics 2016a, “Germany Unemployment Rate
Background image
Image of page 16

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture