Question

During hyperinflation such as Germany after World War I and Venezuela now, transactions costs skyrocket. One should anticipate that output

A. did not change.

B. grew at a much smaller pace than prior to the war.

C. increased dramatically.

D. declined sharply.

Answer 1

Hyperinflation is a situation when there is inflation in the economy.

There is a sudden and rapid increase in the price of goods and services.

Due to this people start holding the goods for future use.

This causes sharp decline in the output because for the suppliers as well the buying cost increases. Like the raw materials.

So the answer is option D