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Macro economics - Essay Example

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Politicians and economists alike study the cause as well as the solutions that would bring a country’s economy into recovery. However,…
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Macro economics
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Download file to see previous pages Inflation that comes with recession is normal but hyperinflation is a nightmare.
Hyperinflation occurs when inflation is out-of-hand making a currency lose its value while prices soar at an alarming rate ( Sheffrin, 341). Inflation is actually a normal part of an economic cycle which occurs at certain times in a year, but when inflation is not headed towards equilibrium, hyperinflation happens. Among the world’s worst case of inflation, Hungary stands out due to the phenomenal nose-dive of its currency – the pengo. This happened to Hungary between the last quarter of 1945 towards July 1946. In order to fully understand the magnitude of this hyperinflation, it must be pointed out that a year before the hyperinflation ( 1944 ), the pengo’s highest denomination was only 1,000. A year later, the highest denomination was
already a staggering 10,000,000 pengo. It meant that one needs an awful lot of money to purchase an item due to the low value of currency. This instance did not end the cycle , it even got worse when the pengo reached its highest denomination in 1946 – a shocking 100,000,000,000,000,000,000 pengő. The rate of the pengo was fluctuating faster than the weather as radio announcements were made daily to adjust its rate. Even when the pengo was replaced by the forint ( new currency ) in 1946, still the value of the circulating Hungarian amounted to “ one-thousandth of one US dollar” ( Judt 87). In fact, some pictures from old Hungarian newspapers depict people sweeping the almost useless banknotes. In contemporary times, this can be compared to the hyperinflation that occurred in Zimbabwe; however, the Hungarian incident is more severe as “ the inflation reached a peak of 1.3 x 11016 percent per month (prices double every 15 hours)” according to the report of Zimbabwe Situation in 2008.
There are many reasons why hyperinflation occurs in an economy. Among the prevalent factors are economic depression, aftermath ...Download file to see next pagesRead More
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