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Causes Of Hyperinflation

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Inflation is an economic concept that can be defined in two different ways, both of which mean the same thing. First, inflation can measure the rate at which prices rise. The second way inflation can be defined is the rate at which money loses its value or its purchasing power. Inflation is the reason you need more money today than you needed five years ago to buy something. There are three different periods of inflation which are deflation, disinflation and hyperinflation. Decrease in government, personal or investment spending are the causes of deflation. Deflation occurs when there’s a general decline in prices, often caused by a reduction in the supply of money or credit. Deflation is the opposite of inflation. Unemployment increases during …show more content…

They occur when the monetary and fiscal authorities of a nation regularly issue large quantities of money to pay for a large sum of government expenditures. Once consumers realize what is happening, they expect inflation. This causes them to buy more now to avoid paying a high price later. Noting the prevalence, it skyrockets the demand out or proportion, causing inflation to spiral into hyperinflation. Hyperinflations are very large taxation schemes. It is inflation in a form of taxation in which the government gains at the expense of those who hold money while its value is declining (Michael K, …show more content…

Real wage flexibility has acted as a partial substitute for unemployment, thereby providing a smoothing mechanism of the adjustment process. Indeed, the capacity to undertake relative wage and price adjustments is one of the pre-conditions for a sustainable pegged exchange rate. (The Portuguese Disinflation Experience) Deflation is when asset and consumer prices continue to fall. Which means Recession probably underway, with unemployment rate rising, continuous fall in wages, and ongoing decline in the value of your home and your stock shares. What worst is when businesses lower prices of their product in a desperate attempt for people to buy their goods. Deflation is measured by any decrease in the Consumer Price Index. Fall in the Consumer Price Index causes the prices to fall. When prices continuously fall, people tend to put off purchases hoping that they can get a better deal. This pressured the manufacturers to constantly lower the prices of their products. Some even come out with new products. But be cautious, constant cost-cutting means lower wages and lower investment spending. This will resulted in an increase in the rate of

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Prices went sky-high, and high inflation only worsened the situation for many of the laborers. The first to blame was the Bank of the United States, which had stopped exchanging precious metals for banknotes. When it began to call its loans, people were unable to pay, leading to a devastating effect on the economy. The

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The Panic of 1837 was a financial crisis, or market correction, driven by tentative fever. Inflation became uncontrolled after federal deposits to the Second Bank of the United States were withdrawn, based on the assumption that the government was selling land for state bank notes of questionable value. The Panic of 1837 involved Andrew Jackson administration issuing the Specie Circular, declaring that it would accept only gold and silver as payment for public land. Prices fell about 25 percent and many businesses began to fail and farmers were unable to pay their mortgages because of their decline in income and because they were losing their jobs. Martin Van Buren, who became president in March 1837, was largely blamed for the panic.

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The overproduction of goods is caused by products not being brought, businesses not cutting back on making products, businesses laid off workers, and unemployment. For example, if someone is unemployed than he or she cannot buy products that were being produced. If nothing is being brought than businesses had to lay off workers. Since people were getting laid off family income was getting lower and lower. According to Document one, banks panics began when investors demanded their deposits in cash (AmeriTrust Co. Cleveland).

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What causes a recession is inflation. Inflation is a general increase in prices and the fall in the value of money. Falling confidence in the consumer can be a major cause in leading to a recession. Also, manufacturing orders starting to slow down in the economy, this can lead to less money being produced throughout the economy resulting to a loss of jobs. Since this causes a high unemployment rate many of the people will get on a government welfare program to pay for their family and that is even more money being lost in the economy, making the nation fall into a deeper recession.

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Inflation is the rate at which the general level of prices for goods and services is rising, and, then purchasing power falling over a period of time. When price level rises, dollar buys fewer goods and services. Therefore, inflation results in loss of value of money.

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CHAPTER 2 LITERATURE REVIEW INFLATION (InvestorWords, 2015) stated that inflation is the increase in the general price level of goods and services in economy, normally caused by excess supply of money. Inflation usually measured by the Consumer Price Index (CPI). When the cost of producing goods and services goes up, the purchasing power of dollar will decrease. A customer will not be able to purchase the same goods and services as he/she previously could.

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