In 1980, one Zimbabwean dollar was worth 1.47 U. S. dollars. By the end of 2008, the exchange rate was one U. S. dollar to 2 billion Zimbabwean dollars. When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe, the economy is said to experience?

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Business

Dottie

13 November, 11:41

In 1980, one Zimbabwean dollar was worth 1.47 U. S. dollars. By the end of 2008, the exchange rate was one U. S. dollar to 2 billion Zimbabwean dollars. When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe, the economy is said to experience?

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Luke Ramsey · Answer 1

Hyperinflation.

Explanation:

Hyperinflation occurs, according to economist Phillip D. Cagan, who developed the most widely accepted mathematical model of hyperinflation to this day, when the general price level in a economy increases by 50% in a single month.

The cause of hyperinflation is clear: an excessive growth of the money supply that is not accompanied by a smiliar growth in the output of the economy. The most common reason for this is governments printing money to meet spending demands.

This is exactly what happened in Zimbabwe: the government of former ruler Robert Mugabe was broke, and Mugabe resorted to printing money to pay for debts, for the military, among other things.