Q1) Find unweighted as well as weighted inflation (price index):

Commodity
A
B
C
D

Commodity
A
B
C
D

Base Year
30
20
6
2

Base Year
30
20
6
2

Current Year
40
25
12
4

Current Year
40
25
12
4

Weights
.25
.15
.10
.50

HYPERINFLATION IN ZIMBABWE
ZIMBABWES chart topping inflation reportedly at 24,000 % qualifies the
nation as experiencing hyper inflation. Compare that to the next highest
inflation of 40% in Burma.
The main cause of hyperinflation is a massive and rapid increase in the
amount of money (estimated at 17,000%), which is not supported by growth
in the output of goods and services.
When the entity responsible for printing a currency promotes excessive
money printing, with other factors contributing a reinforcing effect,
hyperinflation usually continues.
The body responsible for printing the currency cannot physically print paper
currency faster than the rate at which it is devaluing, thus neutralising their
attempts to stimulate the economy. This is clear with the new $750,000
bearer (or is it burial) cheque. The countrys highest note cannot even buy a
loaf of bread. Can you imagine walking into Tesco in the UK and one loaf
costing more than 50, or being in Walmart in the USA, and a loaf going for
more than US$100? Imagine being in No Frills, in Canada one loaf going for
more than C$100? This is how Zimbabwes currency has been absurdly
decimated by inflation.

Zimbabwes hyper-Inflation is a result of the monetary authority irresponsibly

borrowing money to pay all its expenses and funding quasi-fiscal activities
(which are normally left to Central Government). In Neoliberalism,
hyperinflation is considered to be the result of a crisis of confidence. The
monetary base of the country flees, producing widespread fear that
individuals will not be able to convert local currency to some more
transportable form, such as gold or an internationally recognized hard
currency.

Zimbabwe's economic disaster was built on terrible economic policy and bad
luck. A combination of droughts and ill-designed land "reforms" savaged
production of important crops like maize and tobacco. Government spending
was nearly uncontrolled. Foreign debts mounted. And then the government
of Zimbabwe tried to solve its problems by turning on the printing presses.
"The Economic Times newspaper noted on June 13, 2008, that a loaf of
bread now costs what 12 new cars did a decade ago, and a small pack of
locally produced coffee beans costs just short of 1 billion Zimbabwe dollars.
A decade ago, that sum would have bought 60 new cars. At the height of
the hyperinflation, prices doubled every few days, and Zimbabweans
struggled to keep their cash resources from evaporating. Businesses still
quoted prices in local currency but revised them several times a day. A

minibus driver taking commuters into Harare still charged passengers in local
currency but at a higher price on the evening trip home. And he changed his
local
notes
into
hard
currency
three
times
a
day.
The government attempted to quell rampant inflation by controlling the
prices of basic commodities and services in 2007 and 2008. Authorities
forced merchantssometimes with police forceto lower prices that
exceeded set ceilings. This quickly produced food shortages because
businesses couldnt earn a profit selling at government-mandated prices and
producers of goods and services cut output to avoid incurring losses. People
waited in long lines at fuel stations and stores. While supermarket shelves
were empty, a thriving black market developed where goods traded at much
higher prices. Underground markets for foreign exchange also sprang up in
back
offices
and
parking
lots
where
local
notes
were converted to hard currencies at much more than the official central
bank rate. Some commodities, such as gasoline, were exclusively traded in
U.S. dollars or the South African rand, and landlords often a ccepted groceries
and food items as barter for rent."

Q1) Do you feel the inflation in Zimbabwe is due to demand pull or cost push? Explain
with proper explanations.
Q2) How does the role of excess demand and black market come into play?