Zimbabwe’s descent into economic chaos during the late 1990s and early 2000s resulted in hyperinflation. By August of 2008, the monthly inflation rate stood at 839%! Retailers were increasing their prices more than once each day. The government had to issue currency in ever rising denominations—the highest denomination note circulating in August of 2008 was for $100 billion ($100,000,000,000) Zimbabwean dollars!
a. Consider a loaf of bread with a price of $4 at the beginning of a month. With an inflation rate of 839% per month, what would the loaf ’s price be at the end of a month in order to “keep pace” with inflation?
b. In the scenario in Part (a), what percentage of its purchasing power did a fixed nominal amount of currency retain at the end of the month?
c. What daily percent price increase, compounded over a 30-day month, would result in an 839% overall price increase during the month?
d. Consider a piece of candy priced at just one cent ($0.01) at the beginning of a year. If inflation continued at the rate of 839% per month for an entire year, what would be the inflation-adjusted price of the candy at the end of the year?