Declining Output, Hyperinflation, and Trade Deficit

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Macroeconomics
Chapter 17
Declining output contributes to hyperinflation. Brook Larmer defines hyperinflation as the phenomenon that occurs when the government persistently prints or spends money that is unavailable and the public loses confidence in the currency (Larmer 354). In particular, declining output means that there exists a shortage of goods and services, leading to increased prices of commodities. Based on the law of demand, prices of products and services rise when the quantity demanded plummets. However, if the government prints more money, it does not mean that the quantity of goods increases. In that light, a scenario occurs when more money is chasing a few products. That is why in the case at hand, an individual walked into a restaurant in Managua with a backpack full of cash to buy a meal.
On the contrary, hyperinflation contributes to the declining output. People tend to hoard products, including food due to the rising prices, and in turn, it leads to shortages. From 2013 to 2017, Venezuela’s economy shrank by 35% and economists projected another 18% decline in 2018 (Larmer 354). Hyperinflation in this country caused chronic medicine and food shortages. Some people fled the country since they would no longer sustain their lifestyles. Even with 300 billion barrels of oil reserves, it was difficult for Venezuela to redeem its economy from hyperinflation (Larmer 355). As a result, hyperinflation causes declining outp...