HYPERINFLATION BY: AS ASHWI WITA A AN AND YING G ZHAO
WHAT IS HYPERINFLATION? • HYPERINFLATION IS A SITUATION WHERE THE PRICE INCREASES ARE SO OUT OF CONTROL THAT THE CONCEPT OF INFLATION IS MEANINGLESS. • THE SUDDEN FLOOD OF PAPER MONEY INTO THE ECONOMY, ON TOP OF THE GENERAL STRIKE - WHICH MEANT THAT NO GOODS WERE MANUFACTURED, SO THERE WAS MORE MONEY, CHASING FEWER GOODS - COMBINED WITH A WEAK ECONOMY RUINED BY THE WAR, ALL RESULTED IN HYPERINFLATION.
Suppose, inflation in Germany is 100%, and inflation in UK is 0%. PROBLEMS … This means German prices are doubling compared to the UK. You will need twice as much Germany currency to buy same quantity of goods. The purchasing power of the German currency is declining, therefore the value of mark will fall on exchange rates. • PRICES RAN OUT OF CONTROL – FOR EXAMPLE: A LOAF OF BREAD, WHICH COST 250 MARKS IN JANUARY 1923. AND IT HAD BEEN RISEN TO 200 MILLION MARKS IN NOVEMBER 1923. • GERMAN'S CURRENCY BECAME WORTHLESS. • SOME PEOPLE USED MONEY AS A FUEL.
HOW DID THIS HAPPEN? • The government borrows money into existence (from the central bank) and then spends it into the economy . • Hyperinflation takes off when the entire population gets wise. It happens when that money really starts to move around as people try to get rid of it. The prices of useful goods get bid up to increasing levels.
WHAT ARE THE CAUSES OF HYPERINFLATION? • GERMANY BEGAN TO SUFFER SERIOUS INFLATION DURING THE WAR. THE GERMAN GOVERNMENT DID NOT PAY FOR THE WAR BY TAXING PEOPLE MORE HEAVILY. INSTEAD IT PAID IT’S BILLS BY PRINTING BANKNOTES. • THINGS GOT WORSE AT THE END OF THE WAR. A HUGE AMOUNT IN REPARATIONS WAS DEMANDED FROM GERMANY. THE SUM TO BE PAID WAS FIXED AT £6,600,000 IN 1921. MANY FOREIGNERS THOUGHT THAT GERMANY WOULD BE UNABLE TO PAY. THEY BEGAN TO LOSE CONFIDENCE IN GERMANY'S CURRENCY.
THE CAUSE OF A PRICE! Item 1913 Summer 1923 November 1923 1 egg 0.08 5000 80,000,000 1 kg of butter 2.70 26,000 6,000,000,000,000 1 kg of beef 1.75 18,800 5,600,000,000,000 12.00 1,000,000 Pair of shoes 32,000,000,000,000
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