In 1983 the Zimbabwe to dollar exchange rate was roughly $/$ 1. After rising to power in the late 1980's Robert Mugabe's government worked to maintain political control by paying supporters with newly minted money. By 2007 the Zimbabwe inflation rate was ~79.6 billion percent and the exchange rate was approximately $/$ 669.

a. Briefly write out and describe the components of the Monetary Model.

b. Use the monetary model to explain Zimbabwe's hyper-inflation.

c. Describe the equilibrium concept of Purchasing Power Parity (PPP) and its relationship to currency exchange rates. Feel free to use an equation and describe what it means. d. Use the equilibrium concept of purchasing power parity to explain the change in Zimbabwe's exchange rate.