Hyperinflation is inflation that gets totally out of control (in the upward direction) as currency loses it’s values. As such, hyperinflation can grossly interfere with the normal workings of the economy, hurting its ability to supply. Hyperinflation basically causes a vicious cycle to be formed where more and more inflation is formed in each cycel with no seeming end to it. The main cause of hyperinflation is a massive and rapid decrease in money without the amount of goods or services to support that loss.
What results is an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run. Remedies for hyperinflation can occur in numourous fashion depending on the state of the economy of the country that is experiencing hyperinflation. One way that hyperinflation can be remedied is by returning to the use of “hard currency”. This has been done by countries throughout history as a way of preventing or remedying hyperinflation. A second way that hyperinflation can be remediedis by dollarization of a countries economy.
Dollarization is the use of a foreign currency as the replacment of the countries other currency. Prevention of hyperinflation involves the use of wage and price controls and a mixuture of other policy to ensure that monetary values do not slip so that the visicous cycle of inflation does not begin (Miller, 1997). 3. Business cycles are fluctuations in the economic activity around long term growth trends. The cycle will shift around periods of relative growth of recovery and prosperity and also periods of recession. The business cycle was first described in 1860 by French economist Clement Juglar.
He identified cycles that lasted from eight to eleven years. These cycles that Juglar and other economists over the years have described have four sections to them: expansion, crisis, recession, and recovery. The first section of the business cycle is expansion. Expansion occurs when there is an increase in production and prices while at the same time there are low interest rates. The second section of the business cycle is crisis. Crisis occurs when stock exchanges such as the stock market crash and several businesses or companies go bankrupt at the same time. The third section of the business cycle is recession.
Recession occurs when there is a decrease in price and in output while interest rates are high. The fourth section of the business cycle is recovery. The endogenous conditions that affect the business cycle are the internal working factors of the economy itself and its tendency to fluctuate over extended periods of time. In looking at these conditions special attention is paid to factors such as monetary policy, the overinvestment that takes place in the economy, and underconsumption of the economy are all looked at in terms of how they affect the business cycle.
The exogenous conditions that affect the business cycle are the outside factors that affect the economy. These include such factors as war or major inventions (Miller, 1997). War is a good example to look at. When the Great Depression occurred, our country suffered an economic set back that many feared we might not have been able to recover from. Though several factors did help in pulling us out of the Depression, our entry into WWII gave us a huge assist out of the Depression.
Wars generate new jobs and the need for the production of other goods that are associated with the war effort. New jobs in turn generate more money to be spent by consumers which create an upswing of buying in the economy. The reasons that inventories of producers are an important element in the growth-and-decline-in a business cycle is that it helps predict how a cycle will fluctuate for that economy. In measuring the business cycle, economists use as one of the measurements the gross domestic product (GDP) (Miller, 1997).
The GDP is a measure of national income and output for a given economy. By tracking the GDP and other measures of the inventories of producers economists can gauge how long a given cycle will be and can also track how things are fluctuating, either in a good or bad way, during the sections of the business cycle. It stands to reason that in looking at the economy from a cyclical stand point you would need information about the inventories of producers. He inventories of producers help to predict how long the economy will stay in any section of the cycle.