University of Central Florida (UCF) ECO2013 Principles of Macroeconomics Practice Exam 3

Question: 1 / 400

Define hyperinflation.

Stable prices with low inflation rates

Inflation exceeding 20% per year

Extremely high and accelerating inflation, often over 50% per month

Hyperinflation is characterized by extremely high and accelerating inflation rates, which often exceed 50% per month. This phenomenon typically occurs when there is a rapid increase in the money supply that is not supported by the growth in the economy, leading to a decline in the currency's value. As prices rise uncontrollably, the currency loses its function as a stable unit of account, and people may seek alternative means of exchange, such as barter or foreign currency.

In the context of hyperinflation, the economy experiences severe distortions, affecting savings, production, and overall economic stability. Individuals and businesses struggle to set prices and plan for the future when inflation is unpredictable and escalating. This makes hyperinflation a critical concern for economists and policymakers as it can lead to significant social and economic disruptions.

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Moderate inflation within acceptable limits

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