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Business Econ - Assignment Example

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Business Econ Overview Hyperinflation is considered as one of the most significant socially disparaging phenomena in this era of globalization and industrialization. The term hyperinflation is also referred to as a type of inflation, which is extremely high and unmanageable in nature…
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Business Econ Overview Hyperinflation is considered as one of the most significant socially disparaging phenomena in this era of globalization and industrialization. The term hyperinflation is also referred to as a type of inflation, which is extremely high and unmanageable in nature. It mainly occurs when there is an extensive increase in the supply of the money within the economy which is not balanced with the growth of Gross Domestic Product (GDP) of a particular economy. As a result, there occurs an imbalance in the supply and demand, relative to the revenue of the country. Moreover, hyperinflation is a situation when the price increases by a considerable high extent. Hyperinflation is mainly caused due to deficit spending by the government of a country. Thus, hyperinflation can be regarded as a type of inflation, which occurs consecutively for more than three years creating repeated and strong fluctuations in relation to commodity prices within the economy. Hence, it is also known as uncontrolled inflation (Dem & et. al., 2001). Explain why hyperinflation has such a devastating impact on economies. Explain what it takes to stop hyperinflation. Hyperinflation is not a continuous procedure but very rare in nature. The primary cause for the emergence of hyperinflation in an economy is due to high disparity among the demand and supply of money. It arises due to lower confidence level on the currency of that particular economy where hyperinflation is taking place. Apart from this, another important factor which leads to hyperinflation is the surplus production of paper currency, which proves harmful for the entire economy. Hence, it can be depicted that hyperinflation is the most severe form of inflation which offers varied impact on the economy. Distortions in the relative prices of various commodities of the economy might be harmful for the citizens, as it would reduce national savings. Along with this, hyperinflation would also increase unemployment rate of the nation (Williams, 2011). Moreover, it also changes the proper allocation of the income among the citizens, thereby enhancing the demand for lenders as compared to borrowers. It also increases the prices of varied products which are imported from other countries. Thus, it can be revealed from the above discussion that hyperinflation offers a significant influence on the economic conditions of a country. Hence, high concentration should be offered by the government of an economy suffering from hyperinflation, so that its consequences can be effectively mitigated. Government should also implement new monetary policies for the well-being of the country. Apart from this, interest rates can be increased in order to reduce the impact of hyperinflation. Government of a country should also introduce new spending strategies in order to diminish the additional printing of currency notes (Dem & et. al., 2001). Why is there free trade between states in the United States but not necessarily between countries? Free trade is a policy with the help of which a government tends to enhance the opportunities of business in the economy thereby augmenting the GDP rate. Due to the emergence of free trade policy, mutual benefit can be attained by the trading partners from the varied business operations. Free trade is present among the states of United States (US) under the rules and regulations of North American Free Trade Agreement (NAFTA) and Canada-United States Free Trade Agreement (CUSTA). In addition, as the US is one of the members of both these trade agreements, free trade policy is implemented among the varied states within the economy. As a result, it includes numerous benefits namely increasing the employment, improving the standard lifestyle amid the citizens, increasing the income rates resulting in economic growth. Besides, there are many countries which are not participants of these trade agreements and hence do not encompass the facility of free trade to this similar extent (Farm Foundation, n.d.). When the world’s economies are on a fixed gold standard and the discoveries of gold do not keep pace with the growing world GDP, what happens? Gold standard is a system which was previously utilized by global economies to maintain the prices of varied commodities alike for a long time span thereby preventing inflation. It also facilitates in enhancing the monetary condition of an economy. However, it also includes various problems as well. Hence, relying entirely on the standards of gold is not considered as a suitable option to define the commodity prices within an economy in the modern day context. In case of various trading operations among different countries, gold is transferred from one another, which results in economic down turn. Apart from this, it also declines the currency of a particular country involved in trading procedure. Hence, it might result in collapse of financial systems of a country. Similarly, inadequate currency may also lead to lowering of GDP of the economy resulting in depression (Jastram, 1981). Thus, it can be depicted that it shall be more beneficial to keep pace on the growth of GDP in a particular economy rather than on the standards of gold to measure its overall development. References Dem, A. & et. al. (2001). Inflation and hyperinflation in the 20th century causes and patterns. Retrieved from Farm Foundation. (No Date). Trade Agreements Assessed. Retrieved from Jastram, R. W. (1981). The gold standard. Retrieved from NABA. (1997). The Gold Standard. Retrieved from Williams, J. (2011). Hyperinflation special report. Retrieved from Read More
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