Prior to the 2009, Zimbabwe experienced several years of declining real GDP. According to an article in the Wall Street

Journal,

"After Zimbabwe abandoned its currency in favor of the greenback, the economy grew at an annual rate of 6% in 2009 and 9% in 2010."

Source: Patrick McGroarty, "Hanging On to Dollars in Zimbabwe," Wall Street

Journal,

March 26, 2012.

Why would Zimbabwe abandon its own currency to begin using U.S. dollars ("greenbacks")?

A.

To give up some of the country's sovereignty in order to become under partial control of the U.S. government.

B.

To make it easier to trade with the U.S. because the exchange rate effects would no longer be a difficulty.

C.

To restore confidence in the government's ability to stabilize and reduce the rate of inflation.

D.

To provide additional kickbacks to friends of the politicians that helped them get elected.

Which of the following is not a reason using the U.S. dollar as its currency would have enabled the economy of Zimbabwe to resume growing?

A.

There would be less control of the economy's money supply.

B.

There would be a reduction in transactions cost which would enable more efficient uses of resources.

C.

There would be additional lending and investing with reduced inflation.

D.

There would be reduced inflation which would create more consistent expectations.

What potential problem could using U.S. dollars rather than its own currency pose for the Zimbabwean government?

A.

The government could no longer just print money to pay for goods and services.

B.

Other countries would be less likely to engage in foreign direct investment with Zimbabwe because those firms would then have to use dollars to make transactions.

C.

The government would no longer be able to use domestic monetary policy as the money supply would be tied to the other country's central bank.

D.

Zimbabwe will no longer be able to issue any bonds and would have to always have a balanced budget.