Transition Economies

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Economics
Yaser Amad
Transition Economies
Ms. Cummins
Words: 826 (without citation) 1,006 (with)
Many countries these days have switched from a command to a more market orientated economy. This process is called a transition in which many countries have taken, including Ecuador. Prior to being a market economy, Ecuador was once a command economy which is an economy that has all its decisions made by a central government such as: what to produce, how to produce it, and for whom to produce. Ecuador’s economy depends heavily on petroleum production and exports of agricultural commodities and seafood [1] .

In the 1990s Ecuador devoted itself to an efficient free market economy. In the year 1999 a hyper inflation occurred in Ecuador’s currency, the Sucre. The inflation of Ecuador was caused by two main reasons, the first reason was that Ecuador had taken a loans that led up to a total of ten-billion dollars of debt[2], this led Ecuador to the second reason which was that the government printed and an excessive amount of money to pay off debt. This had a negative effect because prices ended up rising rapidly to keep up with the currency excess. Inflation is an increase in the general level of price for goods and services; it is measured as an annual percentage increase. Hyperinflation is unusually rapid inflation. This caused a major economic crisis, the GDP contracting by 5.3%; this was a tremendous down fall. [3] The inflation had risen from 52.2% in 1999 to 96.1% in 2000. The banking system failed, poverty increased, and the debt possessed by Ecuador became much more rigid than planned the hyperinflation created a tiny middle class in this third world country [4]. In March 2000, the government decided to adopt the United States dollar, this process is called dollarization. There are two types of dollarization, the unofficial dollarization and the full dollarization. The unofficial dollarization is when a country chooses to hold a significant share of...
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