Case study analysis - Essay Example

Many foreign business people were encouraged to invest in Russia and a privatisation programme was introduced, as well. The economic reform policy led to high inflation rates in 1992 and the succeeding eight years. The national output fell by almost 20 per cent in 1992 leading to increased unemployment rate in the same year. There was a huge government deficit in 1992 rising from 1.5 per cent in the first quarter to 15 per cent in the last quarter. The economic growth rate slowed down in 1993 until 2000 where the economy almost realised full recovery.

Inflation may refer to the general increase in prices of commodities in an economy. Following the introduction of the reform policy in 1991, Russian economy experienced a hyperinflation in 1992, which amounted to 1527 per cent. The reform critics argued that the Russian economy was very rigid to adopt the mixed economy system. They added that the increased rate of money supply of 600 per cent contributed to the increased inflation rates. When the government abolished the price controls, the monopoly producers hiked the prices of their products.

The consumers, on the other hand, could not afford the goods sold at high prices and this lead to a huge decline in demand. The forces of foreign investors lead to some local producers escape the industry and, as a result, there were huge shortages of commodities in the market. Consequently, the decreased supply levels led to increased prices of commodities, such as food and clothing (Leitzel 213). The rate of inflation rose from less than 200 per cent in 1991 to more than 1400 per cent in 1992.

In 1993, the inflation rate fall drastically to around 300 per cent and reduced gradually to a value below 10 per cent in 1997. Despite the financial crisis in 1998, the rate of inflation remained constant until 199 when it rose with a small per cent. Since 2000, the rate of inflation has remained below 15 per cent until 2008 (see the blue curve). The real GDP declined