Define the Concept of Hyperinflation. Choose a Country in Which Hyperinflation Has Happened and Discuss the Macroeconomics Issues Related.

Define the concept of hyperinflation. Choose a country in which hyperinflation has happened and discuss the macroeconomics issues related.

Hyperinflation is a situation where the price level increases rapidly in an extreme or out of control level. Most economists defined hyperinflation as “an inflationary cycle without any tendency toward equilibrium”. It can also be generally described as ‘inflation that exceeds 50 percent per month, which means that the price level increases more than 100-fold over the course of a year’ (Mankiw, N.G. and Taylor, M. P., 2006, p. 618). As a rule of thumb, normal inflation is reported per year, however hyperinflation is often reported in shorter intervals, for instance in monthly basis.

Hyperinflation is caused mainly by over-printing currency due to excessive deficit spending by a government. The over-supply of money is not supported by Gross Domestic Product growth as usual, this result in an imbalance in the demand and supply of currency (Kiguel, M. A., 1989). As the situation continued, the price level increases due to the loss of value in money. Moreover, it may be caused due to the total collapse of a country’s monetary system, making its currency almost worthless as a medium of exchange.

Some economists also trust that social breakdown due to political instability may lead to hyperinflation (USAGOLD Centennial Precious Metals Inc., 1999). When associated with the political problems like wars, hyperinflation often occurs when there is a loss of confidence in a currency’s ability to maintain its value in the aftermath. Due to the reason above, sellers demand a risk premium to accept the currency, thus they raise prices.

One of the famous examples of hyperinflation occurred in Germany between August 1922 and November 1923 after the World War I (Fergusson, A., 1975). It was recorded as the longest lasting hyperinflation ever. In the phase of hyperinflation, all confidence in the German currency (Mark)...