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Hyperinflations tend to occur when

a. Monopoly firms raise prices above competitive levels
b. The menu costs of price changes become too small
c. Central banks finance large government budget deficits
d. Monetary policymakers act independently of fiscal policy

Answer :

Today at 8:36 AM

Answer:

C) Central banks finance large government budget deficits

Explanation:

Hyperinflation is when general price level rise at accelerating high rates. This leads to loss in real value of currency, people tend to substitute it by other stable currency holdings.

An important cause of Hyperinflation is Deficit Financing. This means government generating funds, by bank issuing (printing) new currency. It is done to cover the deficit, the excess of government expenses over its revenues.

Increase in currency money supply, by borrowing from central bank - raises Aggregate Demand & general price level at a very rapid rate, i.e Hyperinflation

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