Question

Russia experienced inflation of 2500% per year in the early 1990s. Identify the term used to describe this extreme level of inflation rate and briefly discuss the contributing economic factors that caused this situation to arise.

Answer 1

Ans. This high inflation of 2500% per year is called hyperinflation. It mainly occurs because of the excessive printing of nots by the Central Bank of the country to pay for the excessive government spending. The increase in money supply leads to increase in price level according to quantity theory of money and the excess government spending forced the Russian Central Bank to print money in large amount increasing the price level at alarming rates leading to hyperinflation.

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