Question

Venezuela's economy began to experience hyperinflation (rapid, out-of-control price increases) during the first year of Nicolas Maduro's presidency

likely because of heavy money-printing and deficit spending. As a result, its currency, the bolivare (VEF), has become nearly worthless. For example
2010, the exchange rate to the US dollar was 4.3061 VEF/$1; in 2018, the exchange rate was 248,832/VEF/USD. Which factor likely affected the
currency exchange rate the MOST?
OA. economic conditions
OB. balance of trade
OC.
D.
balance of payments
political instability
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Answer 1

A. Economic Conditions

Step-by-step explanation:

The factor that likely affected the currency exchange rate the most in this case is A. economic conditions.

Hyperinflation is caused by an excessive increase in the money supply, which leads to a decrease in the purchasing power of a currency. When there is too much currency in circulation, the value of that currency goes down, and it takes more units of that currency to buy the same goods and services. This results in rapid, out-of-control price increases, as stated in the question.The heavy money-printing and deficit spending mentioned in the question are economic factors that contributed to the hyperinflation in Venezuela. As the government printed more money to finance its spending, the supply of bolivares increased, leading to a decrease in its value. This is reflected in the sharp depreciation of the bolivar against the US dollar, as stated in the question.While political instability can also affect the exchange rate of a currency, in this case, the economic conditions had a greater impact. Political instability may have contributed to the economic problems in Venezuela, but ultimately, it was the economic policies that led to hyperinflation and the depreciation of the bolivar.

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