After World War 1 Germany experienced one of the history’s most speculator examp

Question

After World War 1 Germany experienced one of the history’s most speculator example of hyperinflation. The German government did not pay for the war by taxing people more heavily. Things got worse at the end of the war. A huge amount for damages (reimbursement) was demanded from Germany. The sum to be paid was fixed at £6,600,000 in 1921. Germany’s currency loses confidence of many foreigners because Germany was unable to pay for damages. German government has to face budget deficit because value of their currency decreased too much and they have to pay more in exchange for other currencies.

Required:
Keeping in view the above scenario, how the German Government finances its budget deficit after World War 1?

Explanation / Answer

Germans print more money and failed. (one Line answer) The German government financed its annual deficits by printing additional currency. In short, it increased its money supply and more increase the inflationary curved which dissolve the value of their currency. What they should do is making policies that would grow their way out of it like Increase government receiving, Cut Spending, etc. Printing more money means only speed up inflation and charging more taxes to an economy of weakened currency that cannot afford basic products is not possible.

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