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Hyperinflation

Definition

Hyperinflation is an extreme form of inflation where prices rise rapidly and uncontrollably, eroding the value of money. It often occurs when there is excessive money supply or significant loss in confidence in a country's currency.

Analogy

Imagine you have a bucket filled with water (currency) that has holes. Normally, if you pour water into it slowly (controlled inflation), it will stay relatively full. However, during hyperinflation, someone starts pouring water into your bucket very fast from multiple sources all at once until it overflows uncontrollably.

Related terms

Weimar Republic: The German government from 1919 to 1933 which faced severe hyperinflation due to economic instability caused by World War I reparations.

Zimbabwean dollar: In the late 2000s, Zimbabwe experienced hyperinflation which rendered their currency almost worthless. It serves as a modern example of hyperinflation.

Money supply: The total amount of money in circulation within an economy, including cash and bank deposits. It is an important factor in determining inflation levels.