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Hyper Inflation in Zimbabwe

Hyper Inflation in Zimbabwe

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Published by Neelam Mandowara
economics project
economics project

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Published by: Neelam Mandowara on Feb 19, 2011
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08/03/2012

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HYPERINFLATION IN ZIMBABWE
IBS 
Page 1
 MACROECONOMICS PROJECT ON
Submitted toProf. IRS Sharma
Prepared By(Section B)Abhishek Khosla (seat no. 61) Neelam S. Mandowara(seat no. 68)Preeti choudary (seat no. )Rayaz Ahmad (seat no. 70)
 
HYPERINFLATION IN ZIMBABWE
IBS 
Page 2
ACKNOWLEDGEMENT 
 
 Nothing concrete can be achieved without an optimal combination of inspiration and perspiration. No work can be accomplished without taking the guidance of the import. It is onlythe critiques for the ingenious intellectual that helps transform a product into a quality product.
 
A project is a major milestone during the study period of a student. As such this project was achallenge for us and was an opportunity to prove our caliber. It would not have been possible tosee through the undertaken project without the guidance of 
Prof. IRS Sharma
. It was purely onthe basis of their experience and knowledge that we were able to clear all the theoretical andtechnical hurdles during the development phases of this project work.We would like to thank 
Prof. IRS Sharma
for his influential inputs and priceless guidanceduring the preparation of our report, without which our project would not have been completed.Also, the support and team work within the project group members was a key point in timelycompletion of the project.
 
HYPERINFLATION IN ZIMBABWE
IBS 
Page 3
INTRODUCTION
During World War II, you could buy a loaf of bread for $0.15, a new car for less than $1,000and an average house for around $5,000. In the twenty-first century, bread, cars, houses and justabout everything else cost more. what is it and what causes this??
Inflation
Inflation is defined as a sustained increase in the general level of prices for goods and services. Itis measured as an annual percentage increase. As inflation rises, every dollar you own buys asmaller percentage of a good or service. The value of a dollar does not stay constant when thereis inflation. The value of a dollar is observed in terms of purchasing power, which is the real,tangible goods that money can buy. When inflation goes up, there is a decline in the purchasing power of money. According to Prof. Crowther, ³Inflation is a state in which the value of moneyis falling and prices are rising.´ According to Prof. Kemmerer, ³Inflation means too muchcurrency in comparison to the physical volume of business done´. Keynes stated that ³the rise inthe price level after the point of full employment is true Inflation.´
Types of Inflation
By Cause
1
.
 
D
emand-Pull
Inflation caused by increases in aggregate demand due to increased private andgovernment spending, etc. Demand inflation is constructive to a faster rate of economicgrowth since the excess demand and favorable market conditions will stimulateinvestment and expansion. The failing value of money, however, may encouragespending rather than saving and so reduce the funds available for investment.
2
.
 
C
ost-Push
Presently termed "supply shock inflation," caused by drops in aggregate supply due toincreased prices of inputs, for example. Take for instance a sudden decrease in the supplyof oil, which would increase oil prices. Producers for whom oil is a part of their costscould then pass this on to consumers in the form of increased prices.
3
.
 
B
uilt-In/Anticipated
Induced by adaptive expectations, often linked to the "price/wage spiral" because itinvolves workers trying to keep their wages up (gross wages have to increase above theCPI rate to net to CPI afterítax) with prices and then employers passing higher costs onto consumers as higher prices as part of a "vicious circle." Builtíin inflation reflectsevents in the past, and so might be seen as hangover inflation.
4.
 
Pricing Power/Administered
It occurs whenever businesses in general decide to boost their prices to increase their  profit margins. This does not occur normally in recessions but when the economy is booming and sales are strong. It might be called oligopolistic inflation, because it isoligopolies that have the power to set their own prices and raise them when they decide

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