Question

Explain the roles of monetary and fiscal policy in causing and ending hyperinflations.

Answer 1

Generally,improper planning and implementation of monetary and fiscal policy causes hyperinflation.Monetary policy is framed to control flow of money in the economy and fiscal policy is framed so that government can increase its funds by rising tariffs,tax rates on goods and services.These policies can even lead and end a state of hyperinflation.If monetary and fiscal policy aren't planned appropriately,then this might lead to hyperinflation.As a part of monetary policy,if flow of money is increased in the economy or if maximum money is released,then hyperinflation occurs. Since,maximum flow of money can increase expenditure,then cost of goods and services will rise leading to hyperinflation.Even fiscal policy might cause hyperinflation.If government do not impose proper tariffs and tax rtaes on goods and services then there will be no funds and  its spending decreases.Government's main source of gaining funds is from tariffs and tax rates.If government's spending decreases,no activities of country and state will be funded financially and since there is no financial support from government to companies,etc,then cost of goods and services are rised leading to hyperinflation.This is how monetary and fiscal policies lead or cause hyperinflation.To end hyperinflation,monetary and fiscal policies play major roles.Flow of money should be controlled by planning monetary policy accordingly to end hyperinflation.Monetary policy should be modified and necessary steps should be taken inorder to end hyperinflation.Even fiscal policy should be altered to end hyperinflation.Government should rise tariffs and tax rates on goods and services inorder to increase its funds to help state,country activities financially.This will increase government spending and cost of goods and services wil be decreased by ending hyperinflation.Hence,in this way monetary and fiscal policies play a vital role in causing and ending hyperinflation.