Give a hypothetical example of a nation experiencing hyperinflation. Avoid giving examples provided by the text.
What will be an ideal response?
Examples will vary but should show a thorough understanding of the causes of hyperinflation. For example, suppose a small country has been devastated by a hurricane. Before the storm hit, the country was dealing with a severe recession and unemployment was high. After the storm, the government did not have the resources to repair the damage and feed and shelter the large number of homeless people. To solve this problem, the country borrowed a huge amount from a wealthy neighboring country. However, after ten years, the small country had not made a dent in repaying the debt, so the wealthy country threatened sanctions. In desperation, the small country printed large amounts of money. As a result, inflation soared to rates of 100 percent or more a month, causing hyperinflation.
You might also like to view...
Using Figure 1 below, if the aggregate demand curve shifts from AD2 to AD3 the result in the long run would be:
A. P1 and Y2.
B. P2 and Y2.
C. P1 and Y1.
D. P4 and Y2.
Three difficulties that limit the usefulness of ownership in resolving incentive problems are:
A. wealth constraints, risk aversion, and free-riding. B. wealth constraints, risk aversion, and bundling. C. risk aversion, free-riding, and conflict of interests. D. wealth constraints, free-riding, and bundling.
An externality is the impact of
a. society's decisions on the well-being of society. b. a person's actions on that person's well-being. c. one person's actions on the well-being of a bystander. d. society's decisions on the poorest person in the society.
Refer to Figure 3-4. At a price of $25, how many units will be supplied?
A) 400
B) 500
C) 600
D) 800