In the recent past, Zambia, which is a net importing economy has passed through some serious macroeconomic
Question:
In the recent past, Zambia, which is a net importing economy has passed through some serious macroeconomic turbulences and balance of payment challenges. Under a floating exchange rate regime, a monetary expansion policy by Zambia led to hyper-inflation and currency crisis. Coupled with economic isolation, this led to a complete loss of monetary autonomy; Zambia abandoned its own currency replacing it with a basket of currencies, with the US dollar emerging as the most widely used currency.
Required:
a) Using the Monetary Approach to balance of payment adjustment model and illustrations, evaluate how the monetary policy expansion under a floating exchange rate may have led to Zambia currency problems
b) Explain how Zambia is affected by inflation developments in the US given the above case study.
Expert Answer:
a Using the Monetary Approach to Balance of Payment Adjustment Model to Evaluate Zambias Currency Problems The Monetary Approach to Balance of Payment Adjustment MABP focuses on the relationship betwe... View the full answer
