Hyperinflation Impact on Economies - Assignment Example

Moreover, hyperinflation is a situation when the price increases to a considerably 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 commodity prices within the economy. Hence, it is also known as uncontrolled inflation (Dem & et. al., 2001).

Hyperinflation is not a continuous procedure but is very rare in nature. The primary cause for the emergence of hyperinflation in an economy is due to high disparity between the demand and supply of money. It arises due to a lower confidence level in the currency of that particular economy where hyperinflation is taking place. Apart from this, another important factor that leads to hyperinflation is the surplus production of paper currency, which proves harmful to the entire economy. Hence, it can be depicted that hyperinflation is the most severe form of inflation which offers varied impacts on the economy. Distortions in the relative prices of various commodities of the economy might be harmful to the citizens, as it would reduce national savings. Along with this, hyperinflation would also increase the unemployment rate of the nation (Williams, 2011).

Moreover, it also changes the proper allocation of 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 to reduce the impact of hyperinflation. The government of a country should also introduce new spending strategies to diminish the additional printing of currency notes (Dem & et. al., 2001).

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 the United States (US) under the rules and regulations of the North American Free Trade Agreement (NAFTA) and the 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 employment, improving the standard lifestyle among the citizens, and increasing the income rates resulting in economic growth.  Besides, many countries are not participants in these trade agreements and hence do not encompass the facility of free trade to a similar extent (Farm Foundation, n.d.).