The late Hugo Chavez,Venezuela's former president,proposed that the independence of the Venezuelan central bank be eliminated.Given the research on the relationship between central bank independence and 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 the United States is the domestic country).

Question

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Research has shown that central bank independence helps in controlling inflation. Therefore, if the independence of the Venezuelan central bank is eliminated, we should expect inflation to increase in Venezuela relative to the United States. This would cause the real exchange rate to fall, as the relative purchasing power of the Venezuelan currency decreases.

The Late Hugo Chavez,Venezuela's Former President,proposed That the Independence of the Venezuelan