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Answer :
a. The nominal interest rate after the key interest rate was raised to 70% is 70%.
b. The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. With Zimbabwe's current inflation rate at approximately 200%, the real interest rate would be -130%. This means that even though the nominal interest rate has increased, the inflation rate is so high that it cancels out any potential gains from investing in Zimbabwean dollars.
Zimbabwe's decision to raise its key interest rate to 70% is a drastic measure to combat hyperinflation and stabilize its economy. The country has been facing severe economic challenges for years, including a shortage of foreign currency, high unemployment rates, and political instability. The central bank hopes that by increasing the interest rate, it will encourage foreign investors to buy Zimbabwean dollars, which will increase demand for the currency and help stabilize its value.
However, the high inflation rate means that even with a higher interest rate, investors may still lose money in real terms. Additionally, the high interest rates could also discourage domestic borrowing and spending, which could further harm the economy.
Overall, Zimbabwe's decision to raise its key interest rate to 70% reflects the severity of its economic challenges and the need for drastic measures to address them.
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