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Causes Of Hyperinflation

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Inflation is an economic concept that can be defined in two different ways, both of which mean the same thing. First, inflation can measure the rate at which prices rise. The second way inflation can be defined is the rate at which money loses its value or its purchasing power. Inflation is the reason you need more money today than you needed five years ago to buy something. There are three different periods of inflation which are deflation, disinflation and hyperinflation. Decrease in government, personal or investment spending are the causes of deflation. Deflation occurs when there’s a general decline in prices, often caused by a reduction in the supply of money or credit. Deflation is the opposite of inflation. Unemployment increases during …show more content…

They occur when the monetary and fiscal authorities of a nation regularly issue large quantities of money to pay for a large sum of government expenditures. Once consumers realize what is happening, they expect inflation. This causes them to buy more now to avoid paying a high price later. Noting the prevalence, it skyrockets the demand out or proportion, causing inflation to spiral into hyperinflation. Hyperinflations are very large taxation schemes. It is inflation in a form of taxation in which the government gains at the expense of those who hold money while its value is declining (Michael K, …show more content…

Real wage flexibility has acted as a partial substitute for unemployment, thereby providing a smoothing mechanism of the adjustment process. Indeed, the capacity to undertake relative wage and price adjustments is one of the pre-conditions for a sustainable pegged exchange rate. (The Portuguese Disinflation Experience) Deflation is when asset and consumer prices continue to fall. Which means Recession probably underway, with unemployment rate rising, continuous fall in wages, and ongoing decline in the value of your home and your stock shares. What worst is when businesses lower prices of their product in a desperate attempt for people to buy their goods. Deflation is measured by any decrease in the Consumer Price Index. Fall in the Consumer Price Index causes the prices to fall. When prices continuously fall, people tend to put off purchases hoping that they can get a better deal. This pressured the manufacturers to constantly lower the prices of their products. Some even come out with new products. But be cautious, constant cost-cutting means lower wages and lower investment spending. This will resulted in an increase in the rate of

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