Question

Essay

1. What is hyperinflation?

2. How does this relate to money, banking and financial insitution? explain reasoning.

Answer 1

Hyperinflation

Hyperinflation can be e Devastating for or any economy.this situation can lead to total collapse of the value of the currency of the the economy along with economic crisis and rising external dept and fall in purchasing power of money. Hyper inflation is a situation when inflation rises at an extremely faster rate. the rate of inflation can increase from 50 times to 300 Times.

There are various causes for hyperinflation the major cause of hyper inflation are are government issuing too much currency to finance its deficits,wars and political instability is and an expected increase in people's anticipation of future inflation.when people anticipate that future inflation will rise at a very fast pace they start consuming more goods and services due to the fear that higher inflation in the future will destroy the purchasing power of money. As a result of this the demand for goods and services rises and fuels further inflation. The cycle continuous and results in hyperinflation scenario.

Apart from that there are various causes of hyperinflation. High demand and low production aur supply of multiple commodities create a demand supply gap which lead to a hike in price. Excess circulation of money leads to hyper inflation as money losses its purchasing power. With people having more money they also tend to spend more which causes increased demand. Increases in the price of goods and services is also a factor to consider as a involved leber also expected and demands more costs to maintain their cost of living. This spirals to further increases in prices of goods.

At the time of hyper inflation people or government could take various measures.with food accounting for two third of household budget higher price will worsen demand for non food goods. At a time when consumption expenditure data showing rising poverty along with declining veg is climbing inflation will only lead to increased vulnerability while making an economic recovery harder. In this context federal banks sole mandate of inflation targeting requires a relook and in the the broader scheme of things there is a need for synchronisation of the physical policy with monetary policy. This may help the government to avoid the condition of signification before it had determinantal impact on countries economy.