Economists?

[Hye_Acher]

Are there any Economists in this forum? If so would you please help me answer the following question?

 

The Bolivian inflation rate of 116000% where consumers needed 68 pounds of pesos to buy a TV set. Explain the existence of this hyperinflation using Classical Quantity Theory of Money.

 

Thanks in advance!

[Sasun]

Hye_Acher, what course are you taking?

[DominO123]

Are there any Economists in this forum? If so would you please help me answer the following question?

 

The Bolivian inflation rate of 116000% where consumers needed 68 pounds of pesos to buy a TV set. Explain the existence of this hyperinflation using Classical Quantity Theory of Money.

 

Thanks in advance!

There is some datas here missing I think. Or are you only asking by words about the "quantity" available vs the demand etc... kind of explanation?

[Hye_Acher]

Here is what I have so far.

The Classical Quantity Theory of Money is the Money supply times Velocity = price times quantity which is the nominal GDP.

Ms X V = PQ

 

Velocity meaningà how many trips for example one-dollar bill has made in one year.

Velocity is FIXED since spending habits don’t change dramatically from month to month in a society.

 

So I’m not sure if this is what you want to know fedix.

 

I don’t think it has anything to do with supply and demand. Because money supply increased which eventually money lost its purchasing power therefore Inflation went up. So a product had more value than the money itself.

 

I do not have any price number or quantities of anything. This is how the question was asked. It is more of a monetary policy, which includes “Money Market” and “Goods and Services”

 

Sasun I’m taking economic class.

 

I’m lost

[DominO123]

To say the truth, economy is the domain of math I hate the most(actualy, the only domain in math I hate ).

 

I could help you with the math part only, as I did everything to run away from economy courses and replace them with other math courses.

 

But I am just tired right now and too sleepy... so can't be of much help.

[ED]

Domino, does ecomomics has anything to do with fadixian universe by any chance?

[Sasun]

To say the truth, economy is the domain of math I hate the most(actualy, the only domain in math I hate ).

Domino, I am surprised you say so, since when is Economics a domain of math? Perhaps some things like econometrics, but it is math independently of economics. Same thing goes about game theory, optimization, etc. they are just applications of math in economics, that's it. Math is science, economics is not. A case to the point - 2-3 years ago there was a nobel prize for a theoretical work in Economics (had to do with famine or hunger). One year later the theory proves wrong I don't call this a science.

[Sasun]

Ms X V = PQ

I was going to give this formula but you already know it. I am not clear about the question: is it asking how hyperinflation came to existence? or how is it possible to exist? If the second case, then there you go, the formula says is straightforward. If it is the first question then you must point out some things (such as possible incorrect monetary policy steps) that led to it using the formula and basic demand/supply knowledge in economics. Unfortunately I don't know anything about Bolivian hyperinflation, if you can briefly tell the story perhaps we can pull the donkey out of the mud (not to confuse with Dr. Donkey this is an Armenian saying - esh@ tsexits hanel ).

[Hye_Acher]

is it asking how hyperinflation came to existence?

YES! YES! YES!

I finally had the chance to ask him what he meant by asking this question. What he wants to know is how hyperinflation came to existence?

 

Which goes back to what I said previously Money supply increased in Bavaria to catch up with high prices, whcih money eventually lost its purchasing power. It is demand-pull meaning money went on sell, which increase everything including inflation. I'll have better explination perhas by tomorrow.

 

I think I can word this differently (perhaps better?) any suggestions?

 

Thanks

[Anonymouse]

Well, I'm no economist, but the Classical economists were wrong on many things such as the assumption that an increase of the quantity of money is beneficial to the economy ( which it is not ), that money must have a constant exchange value. It is only logical that hyperinflation would cause soaring prices in which, much like in the Germany after World War 1, a thousand marks could get you a loaf of bread.

[Accelerated]

Its been a while since I did economics, but as far as I remmember:

 

Inflation is basically a measure in the change of price of a basic 'basket' of goods. An inrease in money in circulation will put an upward pressure on prices. The cause of the hyperinflation in Germany was that she had to meet excessive reperations to the Allies for World War 1. The reparations were denominated in German currency, so the wily German government decided why not just print the money . This money naturally found its way back to Germany, increasing supply (demand remains unchanged) causing a fall in the value of the currency, leading to dramatic rise in prices.

 

hope that did it for ya.