How to end hyperinflation
Hyperinflation is an extremely strong form of inflation. The inflation rate in the period of hyperinflation is 50% and more. The price level is rising at a very rapid pace, the currency of the economy is losing its hold. This reduces the purchasing power of the citizens. The only possible countermeasure is currency reform.
This lesson covers hyperinflation. You will find out how hyperinflation occurs and what consequences it can have. Finally, you will be introduced to the measure with which hyperinflation can be ended. To deepen your knowledge, you can answer a few exercise questions after the article.
What is the significance of hyperinflation for the economy?
Hyperinflation doesn't just affect a country's economy. People also have to limit themselves in their private lives and accept immense privations. A sharp price increase tempts consumers to buy hamsters.
Manufacturers are cutting back on sales because the money they get no longer matches the value of their goods and continues to decline in value every day. In return for food, private households use their valuables. So z. B. paid for a sack of potatoes with an expensive clock. Hyperinflation peaks when a country's entire economy collapses.
What is the requirement for hyperinflation?
Hyperinflation is followed by inflation, i.e. Currency depreciation, ahead. The currency of an economy sinks until it has no value at all. This has a particular impact on private households. Consumers have to spend significantly more money on goods and services than they did before inflation began.
Not every price increase triggers inflation. Price fluctuations are not uncommon in economic traffic. As demand increases, so do the prices for certain products. If demand falls again, prices are lowered again. If this mechanism is interrupted, however, because a price increase continues for a long time and prices keep rising, this is the beginning of inflation. An increase in the money supply - this is initiated by a key interest rate cut by the central banks - can also trigger inflation.
An inflation will measured by the inflation rate. The inflation rate indicates in percent how the price level develops within a certain period of time. The values provided by the price index are used as a comparison. Increases z. B. the price index from 100 to 110, the inflation rate is 5%.
When is hyperinflation present?
Hyperinflation occurs when the price development takes on gigantic proportions. With hyperinflation, the inflation rate is 50% and more. It is triggered when the central banks put too much money into circulation to balance the national budget. As a result, the price level rises dramatically.
People couldn't buy anything for the money put into circulation because there weren't enough consumer goods. The money was getting less and less worth. This eventually led from inflation to hyperinflation.
How can hyperinflation be ended?
There is basically only one alternative to end hyperinflation. The government must decide to introduce a completely new currency.
The state has two options to choose from for this step:
- The old currency will be abolished. Each citizen receives a certain amount of the new currency.
- The new currency is exchanged for the old currency. The exchange ratio is at a very high level.
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