Veyann Goh
Badges: 0
Rep:
?
#1
Report Thread starter 6 years ago
#1
Zimbabwe experience hyperinflation in 2007 & 2008. Price of goods in Zimbabwe rose to trillions and quadrillions of Zimbabwe dollars. For example, within six months, the price of a loaf of bread increased from Z$200000 to Z$1.6 trillion. How would those workers and foreign investors might react to this hyperinflation? How would it affect the current account of Zimbabwe? What should the government do in order to improve the situation? (Please help. Thanks)
0
reply
lollollollollol1
Badges: 0
Rep:
?
#2
Report 6 years ago
#2
(Original post by Veyann Goh)
Zimbabwe experience hyperinflation in 2007 & 2008. Price of goods in Zimbabwe rose to trillions and quadrillions of Zimbabwe dollars. For example, within six months, the price of a loaf of bread increased from Z$200000 to Z$1.6 trillion. How would those workers and foreign investors might react to this hyperinflation? How would it affect the current account of Zimbabwe? What should the government do in order to improve the situation? (Please help. Thanks)
Workers may ask for a pay rise to be able to afford the stuff that's dramatically increasing in price.
Investors will panic as the country does not seem stable and prices are sky rocketing and investors look for stability when making investments not things that will go up and down like crazy and not follow the trend.
The current account of the balance of payments will be negatively affected, one reason will be because FDI and other forms of investment will decrease due to lack of stability mentioned above and the BoP may have a deficit (to evaluate this does however depend on what the country's financial account is like, the period of time for the hyperinflation, other factors etc..)
The government could take any measure of reducing AD from shifting very rapidly to the right on the AS/AD curve. Therefore they could tax corporations more which will reduce investment and slow down the AD? Reduce government expenditure? Increase income tax?

Hope this helped, please correct me if I'm wrong on anything - it's quite late and I'm very tired🙈
0
reply
felamaslen
Badges: 15
Rep:
?
#3
Report 6 years ago
#3
In the case of Zimbabwe, the government can stop oppressing people on grounds of race or anything else, and allow a free market to occur.
0
reply
Veyann Goh
Badges: 0
Rep:
?
#4
Report Thread starter 6 years ago
#4
(Original post by felamaslen)
In the case of Zimbabwe, the government can stop oppressing people on grounds of race or anything else, and allow a free market to occur.
If a free market is allowed, the price and quantity of the goods will be decided by the supply and demand curve. This will allow those producers to raise the price of goods in order to gain more profit. Wouldn't this worsen the economy of the country which is having a hyperinflation? Shouldn't the government set a maximum price to certain goods so that the price is controlled, thus the producers can't increase the price as they wish, so consumers will have less burden in buying those goods. In this case, the inflation is controlled. Is this correct?
0
reply
felamaslen
Badges: 15
Rep:
?
#5
Report 6 years ago
#5
(Original post by Veyann Goh)
If a free market is allowed, the price and quantity of the goods will be decided by the supply and demand curve. This will allow those producers to raise the price of goods in order to gain more profit. Wouldn't this worsen the economy of the country which is having a hyperinflation? Shouldn't the government set a maximum price to certain goods so that the price is controlled, thus the producers can't increase the price as they wish, so consumers will have less burden in buying those goods. In this case, the inflation is controlled. Is this correct?
No, the root cause of the hyperinflation was a devaluation of the economy by forcibly removing farmers from their property and therefore their productivity, and putting them in the incapable hands of government.
0
reply
X

Quick Reply

Attached files
Write a reply...
Reply
new posts
Back
to top
Latest
My Feed

See more of what you like on
The Student Room

You can personalise what you see on TSR. Tell us a little about yourself to get started.

Personalise

Do you have the space and resources you need to succeed in home learning?

Yes I have everything I need (252)
57.01%
I don't have everything I need (190)
42.99%

Watched Threads

View All
Latest
My Feed