Hyperinflation - 9b

What is hyperinflation

Inflation above 50% per month

What are effects of hyperinflation

Money ceases to become a store of value possibly losing other values - unit of account, medium of exchange

People may barter or use foreign currency instead of domestic currency

What causes hyperinflation

Usually when a government is faced with a huge budget deficit and sees Seignorage as an easy way out

How can hyperinflation be stopped

Reducing budget deficit by increasing tax/ reducing gov spending

A commitment from monetary authorities to stop printing money to pay off debt

Give an example of when hyperinflation was reversed

Germany 1922-1923 - reparations were suspended and less government employment decreased budget deficit

Central bank was replaced by a far more independent bank not obligated to print money so government could pay off debt