Question

Why have some economists described money during a hyperinflation as a “hot potato” that is quickly passed from one person to another?

Short answer

The value of money during hyperinflation is too less that its actual rate, thus people instead of investing it pass on to the next person.

Step-by-step solution

Step 1. Introduction

Hyperinflation is a type of inflation that is extremely high and often accelerates. As the price of all items rises, it swiftly erodes the real worth of the local currency. As a result, people tend to reduce their holdings in that currency in favor of more stable foreign currencies, such as the US dollar.

Step 2. Explanation

The money during hyperinflation is described as 'hot potato' because when you have something that is really too hot you just pass it to other person. Similarly, the people pass the money during hyperinflation, they waste significant resources attempting to avoid keeping paper money. During hyperinflation, supplies have a higher worth than money.