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Factors that Lead to Hyperinflations - Essay Example
Author : jeanne56
Pages 6 (1506 words)
The general price level captured by inflation rate is an important macroeconomic variable which presents the degree of economic resilience in a country. Hyperinflation is the extreme form of inflation with rapid increase in the general level of prices. Episode of hyperinflation has pervasive implications for any economy as it jeopardizes the macroeconomic fundamentals in a substantive way…
To provide an empirical verification of hyperinflation phenomenon, a more focused study on the ravaging hyperinflation and its impacts on Zimbabwe are attempted in section 4. Some of the course correction that a country such as Zimbabwe requires to embark on to arrest its hyperinflation is presented in section 5, before section 6 concludes this essay.
A number of economists have attempted to define inflation, in their own terminology. For professor Crowther, inflation is marked by declining value of money, and conversely the rising level of prices (197). Pigou observed that inflation occurs when money income expands more than proportionately to income earning activity (439). In general, inflation is associated with a state of abnormal increase in the quantity of money. Inflation is linked to the issue of too much currency in the economy (Hawtrey 60). For Coulborn, inflation is a monetary phenomenon where "too much money chases too few goods" (356). According to Keynes, inflation is caused by an excess of effective demand over supply (296). For Friedman, inflation is a process of steady and sustained increase in prices. Inflation, thus, is a monetary phenomenon characterized by high prices, and conversely falling values of money (17). ...