Course Project 2 Ch16 #6
Throughout history we have witnessed periods of hyperinflation have an effect on countries in dramatic ways. This duration of hyperinflation can take many years for a country to overcome through deflation to balance the value of their dollar. Hyperinflation is created by an extreme rapid inflation causing price increases to be so out of control that the concept of inflation is meaningless. For example, a sandwich that once cost $2 would now cost $3000 showing there is no relative value in relation to the country’s GDP (gross domestic product). Hyperinflation is to be in effect when inflation increased 50% in a month. These times of hyperinflation have been most noted in correlation to the Great Depression and previous wars. When associated with wars, hyperinflation often occurs when there is a loss of confidence in a currency's ability to maintain its value in the aftermath. Because of this, sellers demand a risk premium to accept the currency, and they do this by raising their prices. One of the most famous examples of hyperinflation occurred in Germany between January 1922 and November 1923. By some estimates, the average price level increased by a factor of 20 billion, doubling every 28 hours ("Investopedia,”).
For many people living in a depressed area of hyperinflation they pay a serious consequence to their economies falter. They may have saved their whole lives planning on retirement just to see it vanish because of the hyperinflation due to overprinting or other circumstances. Now the money they saved was no longer worth anything, back to the sample of a sandwich, instead of paying $2 they now had to pay $3000 for the same product. Therefore, people tend to spend their money as fast as they receive it in order to obtain as many goods as possible. With this rapid exchange of money the hyperinflation rapidly increases