What have been the less successful and more successful policy approaches use to combat and hyperinflation,...

What have been the less successful and more successful policy approaches use to combat and hyperinflation, and what were the macroeconomic consequences for the countries that opted for certain policy prescriptions (i.e. currency/capital controls, full-adoption of the US dollar or some other hard currency, and etc.).

Expert Solution

Hyperinflation:- Hyperinflation explains the fast, enromous and out-of-control general price rises in an economy. The inflation is a measurement of the pace of increasing prices for goods and services, hyperinflation is fastly rising inflation, particularly measuring more than 50% per month.

Policy approaches use to control the hyperinflation situation :-

i) Monetay policy :- In the UK and US, monetary policy is the very extensive tool for managing lesser inflation. In the UK, monetary policy is decided the MPC of the Bank of England. An inflation mark is given by the government.
Enhanced interest rates will help decrease the growth of aggregate demand in the economy. The passive growth will then lead to lower inflation.

ii) Supply Side Policies :- Supply-side policies target to enhance long term competitiveness and productivity. Therefore, in the long run, supply-side policies can help decrease inflationary pressures.

iii) Fiscal Policy :- This is the demand-side policy, similar to monetary policy. Fiscal policy associates with the government changing tax and spending levels in order to promote the level of Aggregate Demand. To decrease the inflationary pressures the government can increase tax and lower government spending.

iv) Income Policies :- Wage hike is a main factor in determining inflation. If wages rises fastly, it will cause hyperinflation . So if the government will cut down the wages or modify its income policy, it will control the hyperinflation.

Rahul Sunny answered 2 years ago

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