What is hyperinflation?

a. What is hyperinflation? Why do governments sometimes allow it to occur?
b. In April 2009, the African nation of Zimbabwe suspended the use of its own
currency, the Zimbabwean dollar. According to a news article at that time:
Hyperinflation in 2007 and 2008 made Zimbabwe’s currency virtually worthless
despite the introduction of bigger and bigger notes, including a 10 trillion dollar
bill. (Voice of America News, 2009)vi
i. In the same article, Zimbabwe’s Economic Planning Minister, Elton Mangoma,
was quoted as saying the Zimbabwean dollar ‘will be out for at least a year’,
and in January 2009, the government of Zimbabwe made the US dollar the
country’s official currency. Why would hyperinflation make a currency ‘virtually
worthless’? How might using the US dollar as its currency help to stabilise
Zimbabwe’s economy?
ii. An article on Zimbabwe describes conditions in summer 2008 as follows:
Official inflation soared to 2.2 million percent in Zimbabwe—by far the highest
in the world… [and] unemployment has reached 80 percent. (The New York
Times, 2008)
Is there a connection between the very high inflation rate and the very high rate
of unemployment? Briefly explain.
c. During the German hyperinflation of the 1920s, many households and firms in
Germany were hurt economically. Do you think any groups in Germany
benefited from the hyperinflation? Briefly explain.

Sample Solution