In the early 1920s, Germany was in a period of hyperinflation. The 20,000,000, 50,000,000, 1,000,000,000, and 5,000,000,000 mark bills were some of the notes that a working-class person would have carried in order to purchase basic goods like bread, meat, and coal to heat their homesthe prices of all of which were soaring.

In retrospect, the chaotic hyperinflationary period was the natural result of years of war, revolution, debt, and instability. However, it also supports the proposition that excessive monetary growth causes inflation and not the other way around since the increase in monetary growth appears to have been exogenous.

a.How do the German authorities control the amount of money in the economy?

b.Explain why inflation is the result of a high rate of money growth

c.Explain how the strength of the German mark in foreign money markets affect the inflation rate, using example.