"In economics, hyperinflation is a very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase."
An extremely high rate of inflation, typically exceeding 50% per month.
Definition of Hyperinflation: This refers to a situation where the general price level of goods and services in an economy rises uncontrollably, resulting in a sharp loss in the value of a currency.
Causes of Hyperinflation: Understanding the root causes of hyperinflation, such as excessive money printing, fiscal deficits, and weak economic policies, can help one predict and analyze future hyperinflationary events.
Historical Hyperinflationary Events: The study of hyperinflation in history can provide valuable insights into how different economies handled hyperinflation and the lessons learned from each event.
Effects of Hyperinflation: Hyperinflation has wide-ranging effects on an economy, including erosion of wealth, currency devaluation, unemployment, and social unrest.
Measuring Hyperinflation: Different methods are used to measure the degree of hyperinflation in a given economy. The most popular method is indexing inflation to the US Dollar exchange rate.
Prevention and Control of Hyperinflation: Understanding the measures that can be taken to prevent and control hyperinflation, such as fiscal discipline, monetary policy, and structural reforms, can help policymakers mitigate the risks of this economic phenomenon.
Hyperinflation vs. Inflationary Heel: Hyperinflation differs from inflationary heel by the magnitude and speed at which the general price level of goods and services rises.
Hyperinflation vs. Deflation: Although different, hyperinflation and deflation are both inflationary events that have severe consequences on an economy.
Hyperinflation and Currency Substitution: During hyperinflation, people may transition to using more stable currencies, such as US Dollars, to preserve their purchasing power.
Hyperinflation and Gold: Gold is considered a safe-haven asset during hyperinflationary periods since it retains its value against currency devaluation.
Demand-pull hyperinflation: Occurs when the demand for goods and services significantly exceeds the supply, leading to an increase in prices due to the limited availability of products.
Cost-push hyperinflation: Occurs when the cost of production of goods and services increases, leading to an increase in prices. One of the key drivers behind cost-push inflation is a rise in the cost of raw materials, which then causes an increase in the overall cost of production.
Currency crisis hyperinflation: Occurs when the value of a country's currency falls rapidly due to a loss of confidence in the economy, often caused by political instability, weak economic fundamentals, or external financial shocks.
Monetary hyperinflation: Occurs when a country's government prints too much money, leading to an excessive supply of cash in circulation, which in turn drives up prices.
Structural hyperinflation: Occurs when an economy suffers from long-term structural imbalances, such as high unemployment, a lack of investment, or significant market distortions, leading to persistent inflationary pressures.
Imported inflation: Occurs when a country's inflation rates are influenced by inflation in other countries, usually those that are major trading partners, with prices for imported goods and services driving up prices domestically.
Stagflation: A term used to describe a situation where the economy experiences high inflation rates alongside slow growth or recession, as happened in the US and many other countries during the 1970s.
Reign of terror hyperinflation: A type of hyperinflation that occurs when a country is in a state of civil unrest or war, with the government printing money to finance its military efforts or maintain control over the population. It is often accompanied by significant social unrest and economic collapse.
Situational hyperinflation: This is a relatively new type of hyperinflation that occurs as a result of unexpected and often catastrophic events such as natural disasters or pandemics.
Stealth hyperinflation: A type of inflation that is not immediately obvious to the public but often affects the goods and services that people purchase every day. This inflation can arise from a variety of factors including rising production costs, supply chain disruptions, and changes in government policies that impact consumer prices.
"This causes people to minimize their holdings in that currency as they usually switch to more stable foreign currencies."
"When measured in stable foreign currencies, prices typically remain stable."
"Effective capital controls and currency substitution ('dollarization') are the orthodox solutions to ending short-term hyperinflation."
"There are significant social and economic costs to these policies."
"Ineffective implementations of these solutions often exacerbate the situation."
"Many governments choose to attempt to solve structural issues without resorting to those solutions, with the goal of bringing inflation down slowly while minimizing social costs of further economic shocks."
"Unlike low inflation, where the process of rising prices is protracted and not generally noticeable except by studying past market prices, hyperinflation sees a rapid and continuing increase in nominal prices, the nominal cost of goods, and in the supply of currency."
"Typically, however, the general price level rises even more rapidly than the money supply as people try ridding themselves of the devaluing currency as quickly as possible."
"Almost all hyperinflations have been caused by government budget deficits financed by currency creation."
"Hyperinflation is often associated with some stress to the government budget, such as wars or their aftermath, sociopolitical upheavals, a collapse in aggregate supply or one in export prices, or other crises that make it difficult for the government to collect tax revenue."
"A sharp decrease in real tax revenue coupled with a strong need to maintain government spending, together with an inability or unwillingness to borrow, can lead a country into hyperinflation." Note: After question 12, there are no direct quotes from the paragraph that answer the remaining questions.