Answer

The value of Zook’s currency will decrease drastically in response to the central bank’s attempt to pay off its national debt by printing large amounts of currency. This large increase in the money supply causes the price level to rise by 1,300 percent, which will have a correspondingly large effect on the value of the currency, resulting in a decrease of at least 1300 percent.

Effects of Inflation

Inflation is an overall increase in prices and fall in the purchasing value of money. When the central bank in Zook prints large amounts of currency, it causes an increase in the money supply and a resulting decrease in the value of the currency. This decrease is a direct result of inflation, which is caused by the increased money supply.

Rise in Prices

When the central bank in Zook prints large amounts of currency, the amount of money in circulation increases. This increased money supply causes prices to rise as people have more money to spend. This rise in prices will further decrease the value of the currency, as goods and services become more expensive in comparison to the amount of money available.

Decrease in Value

The value of Zook’s currency will decrease significantly in response to the central bank’s attempt to pay off its national debt. This decrease in value is a direct result of the increased money supply and the resulting rise in prices. This decrease in value will be at least 1300 percent, as this is the amount of inflation caused by the increased money supply.

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