Question

The prices of all the commodities have gone up in the country of Sraznesia, and this has led to country-wide protests. The situation worsens as the average prices increase more than 50% a month, resulting in more aggressive protests from the citizens. In the given scenario, this price rise will most likely lead to _____.

A) Deflation
B) Hyperinflation
C) Stagflation
D) Recession

Answer 1

The situation described in Sraznesia, with average price increases of over 50% a month, will most likely lead to hyperinflation, which is characterized by extremely high and typically uncontrolled inflation rates.

Step-by-step explanation:

The price rise in the country of Sraznesia, particularly with average prices increasing more than 50% a month, would most likely lead to hyperinflation option b. Hyperinflation is a term used to describe a situation where the inflation rate is extremely high, and typically out of control, often resulting in rapidly rising prices and the devaluation of the currency. This is similar to the instance in Israel in 1985 when inflation reached an annual rate of 500%, making it difficult for businesses and individuals to make informed economic decisions due to the rapid and unpredictable changes in price levels.

Key factors that can lead to hyperinflation include a stock market collapse that shakes consumer and business confidence, a rise in oil prices, and situations that negatively impact the economic conditions like a rise in the natural rate of unemployment or other shocks to the economic system. It is essential to take these economic indicators seriously as they can lead to severe and complex economic challenges for a country.