Question

Explain how hyperinflation might lead to a severe decline in total output. (answer in your own words)

Answer 1

hyperinflation means huge rise in prices which means there will be increase in the raw material costs. As raw material costs increase, the cost of production will increase for the firms who make the final output. As production of cost rises that means the profitability of the firms will decline as the firms might not be able to pass on higher costs to customers. As profits reduce, it would lead to cut the output by some firms which has higher costs than others, so this cut in output will leadto severe decline in total output.

the above is answer..