Question

Economists agree that increases in the money supply growth rate increases inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Answer 1

Hyperinflation typically occurs when the government in countries start with high spending, inadequate tax revenues and limited ability to borrow money. Therefore, the government turn to Print money to pay for the spendings. As money supply increases, it leads to regular inflation. Instead of tightening the money supply to stop inflation, the government keeps printing more money to pay for spending. With too much money in the economy, prices skyrocket.

Hypeinflation ends when the goverment undertakes fiscal reforms eliminating the need for the inflation tax. Reforms aimed to cut deficit spending and the need to print money by reducing public expenditures and raising funds via increased taxes, improved tax collection or privatization of state-owned assets.