Question

Read this news report about a planned devaluation of the bolivar, the currency of Venezuela. The president of Venezuela announced that the country would be devaluating the bolivar for the fifth time in nine years. The official rate is falling from 4.3 bolivars to the dollar, to 6.3, a 32% devaluation. By increasing the bolivar value of exports of oil to the US and other nations, the government hopes to alleviate a budget crisis caused by its increasing reliance on borrowing to meet spending obligations. In response to the announcement, the people of Venezuela lined up today to buy televisions, electronics, and airline tickets in order to protect themselves from projected price increases. Venezuelans started buying items immediately because of their fear of
a. rising inflation.
b. price deflation.
c. declining inflation.
d. increased imports.

Answer 1

Answer:

A) rising inflation.

Explanation:

Even though it is not included in the article, Venezuela has the highest inflation rate of the world, more than 2,688,000% during 2018. The Bolivar is practically worthless and ordinary citizens have continuously been doing exactly what this article says regardless of an official devaluation of the currency, every person buys all the goods they can purchase and they don't save any money.

If this article wasn't about Venezuela and instead about some other country like Argentina that also has a very high inflation rate and its currency is constantly being devaluated, then the people will not fear that inflation rises, they know inflation will rise.

When a country is in the middle of a deep recession and decides to devaluate, they generally do it without any previous announcement. We live in a globalized world,  where you can find products from around the world. That happens in almost all the countries and if people know that the purchasing power of the money they have will be lowered by a devaluation, they immediately go and buy all the goods they can. This doesn't apply to services since services cannot be stored. A devaluation will always lead to higher inflation unless you live in North Korea or a similar country with no exports and no imports.  

Answer 2

I think it’s C, I hope is right :)