The document discusses hyperinflation, defined as inflation over 50% per month. It provides examples of severe hyperinflation in countries like Germany in 1923, Hungary from 1945-1946 with monthly inflation peaking at 1.3 x 1016%, and Zimbabwe from 2004-2008 with a monthly rate of 79.6 billion% in November 2008. The causes of hyperinflation include increasing the money supply, currency devaluation, and loss of confidence in the economy. Effects are rising prices, consumption over investment, and international investors avoiding the country. Methods to control hyperinflation include high interest rates, fiscal measures like taxation, and preventing conditions that can trigger hyperinflation.

1. Sumit Sharma
2012328
Vaibhav Goel
2012351
Varun Puri 2012355
Vats Abhishek
2012356
Vinayak Goldar

2. HYPERINFLATION THEORY

3. Hyperinflation is
inflation that is very
high or "out of
control", a condition
in which prices
increase rapidly.
usually more than
50% a month.

4. History of Hyperinflation
 In 1922, inflation in Austria reached 1426%, in
January 1923, the consumer price index rose by a
factor of 11836, with the highest banknote in
denominations of 500,000 krones.
• Germany went through its
worst inflation in 1923. In
December 1923 the
exchange rate was
4,200,000,000,000 Marks
to 1 US dollar. In 1923, the
rate of inflation hit 3.25 ×
106 percent per month
(prices double every two

5.  Hungary went through the worst inflation ever
recorded between the end of 1945 and July 1946.
It is the most severe known incident of inflation
recorded, peaking at 1.3 × 1016 percent per
month (prices double every 15 hours).
 The Republic of China went through the worst
inflation 1948–49. Peak Month and Rate of
Inflation: Apr. 5070%

6.  Hyperinflation in
Zimbabwe was one of the
few instances that
resulted in the
abandonment of the local
currency.
 Hyperinflation began
early in the 21st-
century,in 2004, reaching
624%.
 At its Nov. 2008, peak
monthly rate was 79.6
billion percent, which is
equivalent to around
7× 10108 percent yearly
rate. At that rate, prices
were doubling every 24.7

7. $100 Trillion

8. Causes
 High inflation must always be
preceded by major increases in
the supply of money.
 Imbalance between supply and
demand for the specific currency.
 The reduction of the value of the
paper money.
 Increased borrowing in order to
pay of other debt.

9.  The role of civil war, revolution, or deep
social/political unrest is the factor in many of the
hyperinflation.
 The existence of weak govt. is another important
condition that triggers hyperinflation.
 Loss of confidence in the country’s economy(the
first step into hyperinflation).

10. Effects
 The prices of goods go higher,
especially the prices of
commodities.
 Creates an environment for
consumption and spending,
but NOT investment and
saving.
 International investors will not
invest in the country’s
economy (lacks FDI).
 People prefer to keep their
wealth in non-monetary assets
or in a relatively stable foreign
currency.

11. Zimbabwe Paper Money Used as
Toilet Paper

13.  Decrease in public
purchasing power.
 Currency debasement
(which lowers the value of a
currency, and sometimes
cause a new currency to be
born.
 People tend to barter
instead of using money as a
way of exchanging goods.

14. How it can be controlled
There are broadly two ways of controlling hyperinflation
in an economy:
I).Monetary Measures
The most important and commonly used method to
control inflation is monetary policy of the Central Bank.
Most central banks use high interest rates as the
traditional way to fight or prevent inflation.
Monetary measures used to control hyperinflation
include:
(i) bank rate policy
(ii) cash reserve ratio and
(iii) open market operations.

15. 2). Fiscal measures
Fiscal measures to control hyper inflation include
taxation, government expenditure and public
borrowings. The government can also take some
protectionist measures (such as banning the export
of essential items such as pulses, cereals and oils
to support the domestic consumption, encourage
imports by lowering duties on import items etc.).

16. Prevention
 Increase the interest rate dramatically.
 Cutting government spending and debt.
 Increasing reserve rates for banks.
But each of these steps might have their own
side effects in the economy.