The country of Oceania is now under hyperinflation. Here is the description of w
ID: 1225008 • Letter: T
Question
The country of Oceania is now under hyperinflation. Here is the description of what happened:
Every day, workers in Oceania receive salary twice, once in the noon and once in the afternoon. Usually, the afternoon salary is dramatically higher than the noon one while the noon one is astonishingly higher than yesterday’s afternoon one. After getting the money, people rush out their offices seeking for foods and other necessaries. In fact, they have a 2-hour rest after each salary payment merely for this purpose. Even this is limited since foods and other goods are more and more difficult to be found. Shops and salesmen refuse to sell anything because it is too hard for them to change the tags. It is especially hard for the poor because no one wants to lend anything. Even the rich choose not to hold extra local currencies; instead they exchange them to US dollars in the underground market.
A) Please list all social costs occurred under hyperinflation described above. Hint: Please only list what is mentioned above and provide facts accordingly to support your argument.
B) What do you think happened to those middle class residents who used to have some savings in local currency? Based on your answer, why do rich people tend to exchange for US dollars nowadays?
Explanation / Answer
A.
List of social cost as per the given scenario is as follows:
In a given scenario, society is suffering from hyperinflation. It has resulted into high prices of food and necessary goods. Thus, all money earned is spent on these items. There is no incentive of savings because purchasing power of local currency is coming down very fast. People choose to covert their funds into US dollar. Thus, lenders are also not available in the market. It has cause society to suffer and economic structure crashes down.
B.
Purchasing power of the savings in local currency, done by middle class will be wiped out very soon due to hyperinflation. Thus, these set of people will try to buy food and other necessary goods and will not save in local currency.
Rich people are exchanging local currency with US dollars because US dollar is stable currency and its value will appreciate according to the growth in hyperinflation in local country. Besides, US dollar is most sought after currency in international trade or in overseas nations. Thus, value of savings stored in US dollars will be safe.
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