i)| N. Gregory Mankiw| Principles of Economics, 6th Edition| An extraordinarily high rate of inflation| ii)| | | |
Case Study 1
1. The Case Study 01 article described Zimbabwe as experiencing “galloping hyperinflation”. According to your textbook, what is the definition of hyperinflation?
i) Price| |
ii) Stock Market | |
2. According to the Case Study 1 article, what is happening in Zimbabwe due to the hyperinflation? List two points.
3. Describer the ‘shoe leather cost’ and ‘menu cost’ of inflation. Which one of these costs is relevant to what is happening in Zimbabwe? Explain your answer. | Shoe Leather Cost| Menu Cost|
Concept | Making more frequent trips to the bank causes your shoes to wear out more quickly. | A term derived from a restaurant’s cost of printing a new menu.| Definition| The resources wasted when inflation encourages people to reduce their money holdings.| The cost of changing prices (Cost of price adjustment).|
Example| With a strict daily limits (currently less than $1.40) on bank withdrawals, people shun banks as much as possible and are returning to a cash economy. | A minibus driver taking commuters into Harare every day still charges his clients in Zimbabwe Dollars- but at the higher price on the evening trip home –and changes his local notes into hard currency three times a day. | Which part of the article| 4th paragraph, 1st to 3rd line.| 2nd paragraph, 6th-9th line.|
4. The Case Study 01 article observed that the hyperinflation in Zimbabwe has led to the citizens to turn “to foreign exchange or barter”. Provide two (2)examples from the Case Study 01 article, of this behaviour.