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Factors that Lead to Hyperinflations - Coursework Example

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The paper "Factors that Lead to Hyperinflations" discusses that so a country suffering from hyperinflation should consider improving its political environment from a multidimensional angle comprising international relations as well as internal governance…
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Factors that Lead to Hyperinflations
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Download file to see previous pages Cause of hyperinflation may be described as follows – an unprecedented rise in the money supply that is bereft of any growth in output or services creates a disparity between the demand and supply of money. This imbalance leads to a loss of confidence in the value of the money and finally, hyperinflation. The situation becomes such gruesome that any kind of legal tender laws, price controls, fail to return the confidence on the value of the paper money, which is without any intrinsic value to the consumer. If the government resorts to excessive printing of money and if it gets a friendly environment to foster inflation, hyperinflation keeps on sustaining and in a cumulative manner, erodes the economy day by day. The government in such case often fails to match the pace of its currency printing mechanism with that of the devaluating currency (the rate at which the currency is losing its value). (Hyperinflation: causes, cures”)
The incident of hyperinflation is almost always associated with the paper form of money. This is because it is the simplest way to increase the money supply. In most of the cases after experiencing hyperinflation, an economy reverts to hard money. An investigation into the basic causes of hyperinflation will offer more questions than answers. According to the monetarists and the classical economists, hyperinflation is always led by irresponsible borrowing of money by the government in order to pay all of its expenses. The monetary and classical theory regarding the hyperinflation center on the untamed seignorage on behalf of the monetary authority and the gains they can reap off the inflation tax. The neo-liberals, on the other hand, explain hyperinflation in terms of the confidence crisis. The neoliberal theory of hyperinflation is known as the quantity theory of hyperinflation. ...Download file to see next pagesRead More
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