Increasing money supply and fixed the exchange rate

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In the early 1990s, Argentina stopped increasing the money supply and fixed the exchange rate of the Argentine austral at 10,000 to the dollar. It then renamed the Argentine currency the "peso" and cut off four zeros so that one peso equaled one dollar. Inflation slowed substantially. After this was done, the following observations

Were made. Explain why these observations did not surprise economists.

1. The golf courses were far less crowded.

2. The price of goods in dollar-equivalent pesos in Buenos Aires, the capital of the country, was significantly above that in New York City.

3. Consumer prices--primarily services--rose relative to other goods.

4. Luxury auto dealers were shutting down.

Reference no: EM13852502

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