Question

What Does 200 Million Percent Inflation Look Like? Here’s What Happens When The Central Bank Loses Control. Zimbabwe has been facing 200 million percent inflation. A loaf of bread is a billion Zimbabwe dollars. As you might expect, the US dollar is in short supply there and people are hurting. It relates to sanctions imposed by the West in response to corruption at the highest level of government. On Nov, 21, 2017, Robert Mugabe, the president who ruled Zimbabwe for 37 years, was forced out of office by the military. If you were an advisor to the new president, Emmerson Mnangagwa, what monetary policy would you suggest to help stabilize Zimbabwe's economy? Given the huge inflation rate, should they increase the money supply or decrease the money supply? Why? And how would they do that?

Ethel

Answer 1

Answer.

The best way to counter this situation is contractionary monetary policy. The money supply should get reduced to control the inflation in Zimbabwe. They can reduce money supply by decreasing bond prices and increasing interest rates. This will lead to control the spending level of Zimbabwe. There will also be less credit around which helps in reducing spending.