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  • In June 2015, Zimbabwe began offering an exchange of $5 US dollars for $175 quadrillion Zimbabwe

  • dollars. In 2008, their rate of inflation hit 500 billion percent, and soon after, Zimbabwe

  • abandoned their currency. So, how did it get so bad, and what exactly is inflation?

  • Well, often inflation is described astoo much money chasing too few goods”. What

  • this means, is, if there’s too much physical currency floating around in the economy, then

  • the money’s worth is diluted. Inflation and DEflation, are tightly regulated by the

  • government. And if they weren’t, unchecked inflation of currency could lead to market

  • chaos. In severe cases, a person’s life savings could become essentially worthless.

  • There are many variable factors that play into inflation. One, is the confidence that

  • users have in their currency. Ever since the gold standard was abandoned, money stopped

  • having real worth, based on precious metals. So, modern currency only has value because

  • the government, and its citizens say it does, and they believe in it. However, when the

  • guarantee of that money’s value by the government is threatened by something drastic, like war,

  • it loses some intrinsic value.

  • Another factor that affects the value of money is defined by the ratio of buying and producing

  • in the economy -- orsupply and demand”. In a year, let’s say, if everyone bought

  • the exact amount of goods and services which were produced, this ratio would be 1 to 1,

  • and there would be NO inflation or deflation of prices. HOWEVER - if more or less goods

  • are produced than normal, or, more or less people want to buy them, prices can fluctuate.

  • The Federal Reserve keeps watch of inflation patterns, via long-termprice indexes

  • or the change in inflation rates for various categories of products. TheCPIor Consumer

  • Price Index, and thePPI”, or Producer Price Index, are two commonly used measurements.

  • One looks at how much consumers are paying for products, and the other looks at the prices

  • listed by the producer.

  • Without government regulation, an imbalance in a market’s supply and demand can be exacerbated

  • by a lack of public confidence in the currency. When that happens, “hyperinflationor

  • hyperdeflationmay occur - and normal items can wind up costing either a fraction,

  • or several hundred times what they normally do. For instance, when Germany was struggling

  • to pay its World War 1 debts in 1923, their currency lost investor confidence, and went

  • into hyperinflation. According to reports back then, a simple newspaper cost a wheelbarrow

  • full of German Marks.

  • For Zimbabwe, the worst of their hyperinflation woes are past. But even presently, many continue

  • to improvise their currency, by giving change in things like: pens, candy, and bubble gum.

  • Soon, hopefully, Zimbabwe’s currency will stabilize, and people can continue to grow

  • the market economy with an effective system of money.

  • If youre interested in learning more about Zimbabwe and the situation there, check out

  • our video about the racial struggles between black and white farmers. Thanks for joining

  • us on TestTube News, please subscribe so you don’t miss any of our upcoming videos!

In June 2015, Zimbabwe began offering an exchange of $5 US dollars for $175 quadrillion Zimbabwe

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What Causes Inflation?

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    鄭小鬼 posted on 2016/02/22
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