In 2016 Venezuela Was Expected to Experience Inflation of Up

question 235

Multiple Choice

In 2016 Venezuela was expected to experience inflation of up to 700%. Given that central bank loss of independence tends to lead to inflation, we should expect this event to cause inflation to ________ and the real exchange rate to ________ between the two counties.(Assume the nominal exchange does not change, and that Canada is the "domestic" country) .

• A)rise in Venezuela relative to Canada; fall
• B)fall in Venezuela relative to Canada; fall
• C)rise in Venezuela relative to Canada; rise
• D)fall in Venezuela relative to Canada; rise
• E)fall in Venezuela relative to Canada; remain unchanged

---

Definitions:

Operating Activities

Business activities related directly to the production and delivery of goods and services, generating revenue.

Indirect Method

An accounting technique used in cash flow statements to derive operating cash flow by adjusting net income for non-cash transactions and changes in working capital.

Depreciation Expense

The allocation of the cost of a tangible fixed asset over its useful life, reflecting its consumption, wear and tear, or obsolescence.

Investing Activities

Financial transactions related to the acquisition or sale of long-term assets and investments, part of a company's cash flow statement.