Factors that Lead to Hyperinflations Essay Example | Topics and Well Written Essays - 1500 words

Factors that Lead to Hyper fanfares - Essay ExampleTo provide an empirical verification of hyper fanfare phenomenon, a more focused accept on the ravaging hyperinflation and its impacts on Zimbabwe are attempted in section 4. Some of the course correction that a country such as Zimbabwe requires to inscribe on to arrest its hyperinflation is presented in section 5, before section 6 concludes this essay.A number of economists have attempted to define inflation, in their own terminology. For professor Crowther, inflation is marked by declining value of property, and conversely the rising level of footings (197). Pigou observed that inflation occurs when money income expands more than proportionately to income earning activity (439). In general, inflation is associated with a state of abnormal accession in the step of money. Inflation is linked to the issue of too much currency in the economy (Hawtrey 60). For Coulborn, inflation is a monetary phenomenon where too much money chas es too few goods (356). According to Keynes, inflation is caused by an excess of effective demand over go forth (296). For Friedman, inflation is a process of steady and sustained increase in prices. Inflation, thus, is a monetary phenomenon characterized by high prices, and conversely falling values of money (17). Hyperinflation is a typical case of an extremely rapid growth in the general level of prices, lasting for a number of years. Although a rise in the general prices of more than 50 per cent is treated as hyperinflation, there is no well-defined threshold. All these definitions point to one basic point When the quantity of money in circulation exceeds the total amount of goods and services in the economy, it results in extraordinary increase in prices which we define as hyperinflation. It may be noteworthy that hyperinflation is also called a runaway or galloping inflation, where the quantum of money increases to an extent that its value declines to an incomprehensible lev el.Historically, hyperinflation has occurred in China, Greece, Taiwan, Austria, Germany, Hungary, Poland and Russia. In recent years, countries such as Chile, Argentina and Bolivia experient hyperinflation. At present, hyperinflation in Zimbabwe is a great cause of concern for the economists as it continues to threaten the livelihood of its people.3. Causes of Hyperinflation1According to Prof. Fisher, other things remaining constant, as the quantity of money in circulation increases, the price level also increases in the same proportion and the value of money decreases, correspondingly (45). 1In its rigid form, the quantity theory of money defends a strict proportionality between changes in the stock of money and the general level of prices. If M = stock of money in circulation, V = velocity, P = general price level, the theory states that the level of P depends on MV. Since V is assumed to be constant in the short-run, P and M are proportional to each other. Thus, if P represents the general price level, then 1/P captures the purchasing power of money. The implication is that when the stock of money increases, the value of money decreases, which reflects proportionately on the increase in general level of