Your browser will redirect to your requested content shortly. Click the arrow button in the top upper corner of your browser. Click to run the downloaded file. By clicking to run this downloaded file you agree to how To Be Happy Without Money Microsoft Service Agreement and Privacy Statement. Please forward this error screen to vps33111. Please forward this error screen to indy01. In economics, hyperinflation is very high and typically accelerating inflation.
It quickly erodes the real value of the local currency, as the prices of all goods increase. Unlike low inflation, where the process of rising prices is protracted and not generally noticeable except by studying past market prices, hyperinflation sees a rapid and continuing increase in nominal prices, the nominal cost of goods, and in the supply of money. Hyperinflation is often associated with some stress to the government budget, such as wars or their aftermath, sociopolitical upheavals, a collapse in export prices, or other crises that make it difficult for the government to collect tax revenue. A sharp decrease in real tax revenue coupled with a strong need to maintain government spending, together with an inability or unwillingness to borrow, can lead a country into hyperinflation.
The Economics of Inflation by C. The International Accounting Standards Board has issued guidance on accounting rules in a hyperinflationary environment. It does not establish an absolute rule on when hyperinflation arises. The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency.
The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. While there can be a number of causes of high inflation, most hyperinflations have been caused by government budget deficits financed by money creation. The price increases that result from the rapid money creation creates a vicious circle, requiring ever growing amounts of new money creation to fund government deficits. Hence both monetary inflation and price inflation proceed at a rapid pace. Very high inflation rates can result in a loss of confidence in the currency, similar to a bank run.
Inflation is effectively a regressive tax on the users of money, but less overt than levied taxes and is therefore harder to understand by ordinary citizens. Theories of hyperinflation generally look for a relationship between seigniorage and the inflation tax. In both Cagan’s model and the neo-classical models, a tipping point occurs when the increase in money supply or the drop in the monetary base makes it impossible for a government to improve its financial position. From this, it might be wondered why any rational government would engage in actions that cause or continue hyperinflation. One reason for such actions is that often the alternative to hyperinflation is either depression or military defeat. The root cause is a matter of more dispute. In neo-classical economic theory, hyperinflation is rooted in a deterioration of the monetary base, that is the confidence that there is a store of value that the currency will be able to command later.
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In this model, the perceived risk of holding currency rises dramatically, and sellers demand increasingly high premiums to accept the currency. Hyperinflation is a complex phenomenon and one explanation may not be applicable to all cases. In both of these models, however, whether loss of confidence comes first, or central bank seigniorage, the other phase is ignited. A number of hyperinflations were caused by some sort of extreme negative supply shock, often but not always associated with wars, the breakdown of the communist system or natural disasters. Since hyperinflation is visible as a monetary effect, models of hyperinflation center on the demand for money. Either one, or both of these together are the root causes of inflation and hyperinflation.
In the confidence model, some event, or series of events, such as defeats in battle, or a run on stocks of the specie that back a currency, removes the belief that the authority issuing the money will remain solvent—whether a bank or a government. Because people do not want to hold notes that may become valueless, they want to spend them. Sellers, realizing that there is a higher risk for the currency, demand a greater and greater premium over the original value. In the monetary model, hyperinflation is a positive feedback cycle of rapid monetary expansion. It has the same cause as all other inflation: money-issuing bodies, central or otherwise, produce currency to pay spiraling costs, often from lax fiscal policy, or the mounting costs of warfare. Whatever the cause, hyperinflation involves both the supply and velocity of money.
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