Hyperinflation
Hyperinflation
Inflation is defined as an increase in the money supply without a corresponding increase in real output causing an increase in general price levels. Hyperinflation is an inflation that is very high. While there are no specific guideline as to when inflation becomes hyperinflation, economists usually use the term to describe times when the monthly inflation rate is greater than 50%. As an example, a monthly rate of 50% inflation would mean that an item that cost $1 on a given day in a specific year would cost $130 on the same day the following year.
Hyperinflation is largely a twentieth-century phenomenon. The most widely studied hyperinflation occurred after Germany lost World War I and was unable to pay its reparations. In 1956 Phillip Cagan wrote The Monetary Dynamics of Hyperinflation, which was the first serious study of hyperinflation and its effects. In his study, he defined hyperinflation as a monthly inflation rate of at least 50%.
While there is no specific cause for hyperinflation, there are triggering causes that occur. One of these causes is related to a government trying to pay off large debts without sufficient monetary reserves. Governments deal with large debt by printing more money. In 2008 on National Public Radio, Ken Rogoff, a Harvard University economics professor, explained, “It’s pretty basic. Usually, governments desperate for money start printing currency, lots and lots of currency, and go out buying things.” This causes currency to become worth less and less, which fuels inflation as more money floods the economic system which then drives up prices.
Another cause of hyperinflation is caused by decisions on the part of the central bank to increase the money supply at a high rate leading to a loss in its value. As basic economic principle states, an increase in a supply of any good will cause a drop in the value of that good. This loss in value of money is intensified by how fast money is spent as people
Inflation is defined as an increase in the money supply without a corresponding increase in real output causing an increase in general price levels. Hyperinflation is an inflation that is very high. While there are no specific guideline as to when inflation becomes hyperinflation, economists usually use the term to describe times when the monthly inflation rate is greater than 50%. As an example, a monthly rate of 50% inflation would mean that an item that cost $1 on a given day in a specific year would cost $130 on the same day the following year.
Hyperinflation is largely a twentieth-century phenomenon. The most widely studied hyperinflation occurred after Germany lost World War I and was unable to pay its reparations. In 1956 Phillip Cagan wrote The Monetary Dynamics of Hyperinflation, which was the first serious study of hyperinflation and its effects. In his study, he defined hyperinflation as a monthly inflation rate of at least 50%.
While there is no specific cause for hyperinflation, there are triggering causes that occur. One of these causes is related to a government trying to pay off large debts without sufficient monetary reserves. Governments deal with large debt by printing more money. In 2008 on National Public Radio, Ken Rogoff, a Harvard University economics professor, explained, “It’s pretty basic. Usually, governments desperate for money start printing currency, lots and lots of currency, and go out buying things.” This causes currency to become worth less and less, which fuels inflation as more money floods the economic system which then drives up prices.
Another cause of hyperinflation is caused by decisions on the part of the central bank to increase the money supply at a high rate leading to a loss in its value. As basic economic principle states, an increase in a supply of any good will cause a drop in the value of that good. This loss in value of money is intensified by how fast money is spent as people