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Tackling Hyperinflation
05-13-2010, 08:29 PM
Post: #1
Tackling Hyperinflation
After World War 1 Germany experienced one of the history’s most speculator example of hyperinflation. The German government did not pay for the war by taxing people more heavily. Things got worse at the end of the war. A huge amount for damages (reimbursement) was demanded from Germany. The sum to be paid was fixed at £6,600,000 in 1921. Germany’s currency loses confidence of many foreigners because Germany was unable to pay for damages. German government has to face budget deficit because value of their currency decreased too much and they have to pay more in exchange for other currencies.



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Keeping in view the above scenario, how the German Government finances its budget deficit after World War 1?

NOTE Give answer in JUST ONE LINE not more than that.
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12-21-2010, 07:53 PM
Post: #2
 
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by skystar</i>
<br />After World War 1 Germany experienced one of the history’s most speculator example of hyperinflation. The German government did not pay for the war by taxing people more heavily. Things got worse at the end of the war. A huge amount for damages (reimbursement) was demanded from Germany. The sum to be paid was fixed at £6,600,000 in 1921. Germany’s currency loses confidence of many foreigners because Germany was unable to pay for damages. German government has to face budget deficit because value of their currency decreased too much and they have to pay more in exchange for other currencies.



Required

Keeping in view the above scenario, how the German Government finances its budget deficit after World War 1?

NOTE Give answer in JUST ONE LINE not more than that.




<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Its simple. The germans may easily finance deficit by printing monry but that may also mean that they sustain hyperinflation. However, hyoperinflation would mean that their exchange rate depriciated extremely. This would enhance their trade competitiveness and they would be able to export more and improt only marginal. Higher net exports would mean higher aggrigate income and government may earn revenues directly through direct taxation on both general level or targeting export industries
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