The when there is a very large in the

The aim of this essay is to analyze hyperinflation in developing
countries. It is often told that
hyperinflation and inflation are associated with an expansionary monetary
policy, which in the example of developing countries to a certain extent. In
addition to general expansion of monetary, there are some kind of exogenous
factors that affect the economy to lead to hyperinflation and a simplistic relationship between the
central bank of a nation and the government also contributes to hyperinflation of a country. In the economic growth of the
developing countries, hyperinflation is a matter of serious concern by its
impacts upon national economic development. It is one of the rough indicators
of the growth potential of a country as well as one of the obstacles to
developing country. if  Zimbabwe is a
typical example of hyperinflation. Zimbabwe is located in the southern region
of the African continent, in 2008, the first country to experience a
hyperinflationary episode in the 21st century because the extreme
and uncontrollable inflation made it the first and so far. It was difficult to
measure hyperinflation of Zimbabwe because Zimbabwe’s government stopped filing
inflation statistics.

 

A brief of
hyperinflation:

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In economics, hyperinflation occurs when a country experiences
very high and usually accelerating rates of inflation, it forces the population
to minimize their holdings of money. Under such conditions, the general price
level in an economy increases rapidly when the official currency quickly loses
real value. Meanwhile, the value of economic items generally stays the same
with respect to one another and remains relatively stable in terms of foreign
currencies.

Unlike regular inflation, where the process of rising prices is
prolonged and not noticeable except by studying past market prices,
hyperinflation looks at a rapid and continues increasing in nominal prices, the
nominal cost of goods, and the money supply.  

Hyperinflation often occurs when there is a very large in the
money supply, the gross domestic product (GDP) growth did not support, leading
to an imbalance in the supply and demand for the money when associated to
depressions.

Hyperinflation often occurs when there is a lack of confidence in
the ability of the currency to maintain its value so rapidly. For this reason,
sellers demand a risk premium to accept the currency, it forces they have to
raise their prices when associated to wars.

                                       

Inflation vs Hyperinflation:

In a market economy, prices of goods or services are easily
transferable. Some prices may decrease, some may increase. The inflation occurs
when the price levels for goods and services are increasing, consequently, the
purchasing power of the currency is decreasing. Moreover, goods and services become
less available in comparison with the money in the economy. In other words,
that is, when the supply of goods and services is lower than the demand for
them. For those reasons, in order to keep the economy running without a hitch, the
central bank would like to restrict inflation, avoid deflation. For example, if
inflation rate is 3%, then a book that costs $10 in a given year, it will cost
$10.03 the next year, and more money is required to purchase 

And hyperinflation is exceedingly rapid or out of control
inflation (very high inflation). Hyperinflation is often caused by an extremely
rapid growth in the money supply when the monetary and fiscal policy allows the
issuance of new money to accommodate for government spending, the money supply
grows greater and faster than the real output of the economy and continuing
increase in the cost of goods. There is no precise numerical indication of
hyperinflation, based on The Monetary Dynamics of Hyperinflation by Phillip
Cagan, hyperinflation is defined as starting in the monthly inflation rate
exceeds 50%, and ending when the monthly inflation rate falls below 50% and
lasts for at least one year. Let’s imagine if $50.000 – you could buy a
apartment with that money, was enough to buy you lunch or dinner tomorrow.
Another example,  ” a loaf of bread costs
you 250 marks in January 1923 had risen to 200.000 million marks in September
1923″, the currency of German became worthless.The costs of hyperinflation:When the rise in money supply turns particular areas of pricing
power into a general spending before money becomes worthless. No one is willing
to hold currency which raises the velocity of money and this becomes worsen the
crisis. Because the purchasing power of currency falls rapidly that holding
cash is an unacceptable loss of purchasing power.  Hyperinflation effectively destroys completely
the private and public saving, the economy is distorted in favor of the
hoarding of assets, resulting in the monetary base to fly the country and
making the afflicter’s reluctance to invest.  Business executives devote
a great amount of time and energy to cash management  when cash loses its value quickly. By
diverting at this time and energy from more socially valuable activities, such
as production and investment decisions, hyperinflation makes the economy less
efficiently.  Menu
costs are one of the influences being affected by inflation. It also
becomes larger under hyperinflation. The price level change and increase so
often, of course,  firms have to change
prices that normal business practices such as printing, updating or distributing
catalogs with fixed prices, become unfeasible.  Tax
systems are under hyperinflation’s influences. Existing a delay between
the time a leviable tax and the time it is paid to the government. Since
hyperinflation has occurred, even a short-delay also has reduced significantly
real tax revenue. Due to the money has fallen in value, the government gets the
money by the time. If persistence or worsening of the current hyperinflation continues,
the real tax revenue of the government will fall substantially. Money loses its role as a store of value, medium of exchange and
unit of account. The rise in money supply, the government need to overcome this
problem by adding more and more zeros to the paper currency. The mental value of coins are rapid casualties of hyperinflations,
especially pennies and nickels are very close to the face value. The mental
value of coins tremendously exceeded the face value. When a large amount of price change frequently, that would be definitely
hard for customers to do the shopping for the best price. Highly liable
volatile and greatly rising price, it leads to currency losing value quicker
that assets purchased with it.

 During the period of
hyperinflation, central banks should run loans for 24-hour periods or short
periods, they can offer higher interest rate for deposits. With the aim of
encouraging people in order to deposit the currency in banks and reducing the
money supply in economy.