Inflation Crisis
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An Inflation Crisis is a economic crisis where the inflation of a currency jumps to high inflation.
- AKA: Hyperinflation.
- Context:
- It can cause the Currency-user Population to minimize their holdings of the Money.
- …
- Counter-Example(s):
- See: Monetary Crisis, Money Supply.
References
2014
- (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/hyperinflation Retrieved:2014-10-12.
- In economics, hyperinflation occurs when a country experiences very high and usually accelerating rates of inflation, rapidly eroding the real value of the local currency, and causing the population to minimize their holdings of the local money. The population normally switch to holding relatively stable foreign currencies. Under such conditions, the general price level within an economy increases rapidly as the official currency quickly loses real value. The value of economic items remains relatively more stable in terms of foreign currencies. However, relative prices do change over the course of the hyperinflationary period; for instance food prices in Germany during 1913–1923 rose 43% less than those of clothing, whereas they increased 80 times more than rents and 24 times more than the price index of shares. [1] 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 and in the supply of money, [2] and the nominal cost of goods. But typically the general price level rises even more rapidly than the money supply since people try to get rid of the devaluing money as quickly as possible. The real stock of money, that is the amount of circulating money divided by the price level, decreases.[3]
Hyperinflations are usually caused by large persistent government deficits financed primarily by money creation (rather than taxation or borrowing). As such, hyperinflation is often associated with wars, their aftermath, sociopolitical upheavals, or other crises that make it difficult for the government to tax the population. A sharp decrease in real tax revenue coupled with a strong need to maintain the status quo, together with an inability or unwillingness to borrow, can lead a country into hyperinflation.[3]
- In economics, hyperinflation occurs when a country experiences very high and usually accelerating rates of inflation, rapidly eroding the real value of the local currency, and causing the population to minimize their holdings of the local money. The population normally switch to holding relatively stable foreign currencies. Under such conditions, the general price level within an economy increases rapidly as the official currency quickly loses real value. The value of economic items remains relatively more stable in terms of foreign currencies. However, relative prices do change over the course of the hyperinflationary period; for instance food prices in Germany during 1913–1923 rose 43% less than those of clothing, whereas they increased 80 times more than rents and 24 times more than the price index of shares. [1] 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 and in the supply of money, [2] and the nominal cost of goods. But typically the general price level rises even more rapidly than the money supply since people try to get rid of the devaluing money as quickly as possible. The real stock of money, that is the amount of circulating money divided by the price level, decreases.[3]
- ↑ Bernholz, Peter, Monetary Regimes and Inflation, Cheltenham, England: Edward Elgar, 2003, p. 98
- ↑ Where's the Hyperinflation?, Forbes.com, 2012
- ↑ 3.0 3.1 Bernholz, Peter 2003, chapter 5.3