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8 May, 2015 - 11:19

Hyperinflation is the most severe and destructive form of inflation. When money decreases in value so fast that it ceases to be a medium of exchange, the economy returns to barter and the economic activity may come to a halt. Such danger may be present even in a moderate inflation because inflation expectations may produce spirals of cost push and demand pull inflation leading to hyperinflation. However, some countries manage with very high inflation.

The classical example of hyperinflation is that of Germany during the 1920's. It is reported that money was losing so much of its value that the weight of money paper needed to buy products exceeded the weight of products that could be bought. It is no wonder that people preferred to avoid using money in their transactions when they could.

Review Quiz

  1. True or False: The rate of unemployment is understated by the increasing number of discouraged workers who drop out of the labor force during severe recessions.
    1. true,
    2. false,
    3. no valid answer.
  2. Recurring periods of expansion and contraction of economic activity are known as
    1. economic waves,
    2. business cycles,
    3. product life cycles,
    4. trends.
  3. OPEC oil crisis has been blamed for which form of inflation in the middle and late 1970's?
    1. cost push,
    2. structural,
    3. demand pull,
    4. hyperinflation.
  4. Hyperinflation is associated with
    1. wage-price spiral,
    2. stock market crash,
    3. great depression,
    4. severe price drop.
  5. Costs of living adjustment are given to employees for one of the following reasons:
    1. anticipated inflation,
    2. unemployment benefits,
    3. retirement benefits,
    4. unanticipated inflation.
  6. True or False: Purchases of automobiles are said not to be postponable because not everybody who drives to work, has to be there on time.
    1. true,
    2. false,
    3. no valid answer.
  7. If wages and interest rates are not adjusted for inflation, who gains from inflation?
    1. debtors,
    2. fixed income earners,
    3. lenders,
    4. savers.
  8. During periods of recession, discouraged workers cause the unemployment rate to be
    1. understated,
    2. overstated,
    3. very accurate,
    4. comparable to that of other countries.
  9. Which of the following form(s) of unemployment is (are) tolerable?
    1. cyclical and structural,
    2. frictional only,
    3. cyclical only,
    4. structural only,
    5. structural and frictional,
    6. frictional and cyclical.
  10. True or False: Indexing of social security payments has increased hardship for most retirees.
    1. true,
    2. false,
    3. no valid answer.
  11. Which of the following is used to measure inflation?
    1. rate of unemployment,
    2. index of production,
    3. index of prices,
    4. Dow Jones index.
  12. Which of the following would cause an overstatement of the rate of unemployment?
    1. part-time workers,
    2. retired workers,
    3. underground economy,
    4. discouraged workers.
  13. Which of the following type of goods is affected by business cycles first?
    1. nondurables,
    2. necessities,
    3. durables,
    4. services.
  14. The $ amount of income is
    1. nominal,
    2. purchasing power,
    3. real,
    4. adjusted.
  15. The form of unemployment which is looked upon as undesirable because it is due to a potentially avoidable slowdown of economic activity, is known as ........... unemployment.
  16. What is the word used to designate a general pattern of price increase throughout the economy? .............
  17. Unemployment which is acceptable because it is attributable to people changing jobs to find higher pay, is known as ................. unemployment.
  18. What is the word used for a general pattern of price decrease throughout the entire economy? ...............
  19. What is the exact word used in economics for the phase of the business cycle during which production decreases and unemployment increases?
  20. Unemployment which must be tolerated because it is tied to declining sector of the economy, is known as .............. unemployment.


  1. A
  2. B
  3. A
  4. A
  5. A
  6. B
  7. A
  8. A
  9. E
  10. B
  11. C
  12. C
  13. C
  14. A


  1. Outline what business cycles are, what causes them and what major problems may occur.
  2. What is unemployment? How is it measured? Is a 0% unemployment rate possible? Why?
  3. What are the 3 types of unemployment identified by economists? Which need serious attention? and which not as much? Explain.
  4. Outline the economic as well as the noneconomic consequences of unemployment.
  5. What is inflation? What are the 2 different causes which are usually discernable.
  6. How does inflation redistribute income in our society?
  7. Explain how the output of a nation can be affected by inflation, especially when inflation is very high.