Question

The fiscal deficit of the country Zoldova has been increasing at an alarming rate for the last decade. One of the major reasons for the worsening fiscal deficit has been indiscriminate government spending which had to be financed by printing more currency. The continuous increase in money supply to finance wasteful government expenditure caused the inflation rate to hit triple digits. With rising instability in the​ country, the central bank had to redenominate its currency earlier this year. As a​ result, currency worth​ 10,000 Zoldovan dollars last year are now worth only 100 Zoldovan dollars. Which of the following is most strongly implied by the information given in the​ question? A. Personal income tax rates in this country are very low. B. ​Zoldova's GDP reached an​ all-time low this year. C. This is the first time the country has experienced hyperinflation. D. Generous salaries and perks to government officials accounted for a substantial portion of government spending. E. The ability of the Zoldovan dollar to function as a store of value has declined.

Answer 1

Answer:

The correct answer is option E.

Explanation:

Store of value is an important function of money. Store of value means money has some purchasing power and is hoarded to be used in future.

Because of re-denomination of currency the worth of 10,000 Zoldovan dollars have reduced to only 100 Zoldovan dollars.

This means that the value of money has declined or in other words the ability to function as store of value has declined.