What term describes a rapid and severe decrease in the purchasing power of a currency?

The term that describes a rapid and severe decrease in the purchasing power of a currency is hyperinflation. This economic phenomenon occurs when prices rise uncontrollably within a short period, leading to a significant reduction in the value of money. As inflation accelerates, consumers are unable to buy goods and services with the same amount of currency, ultimately eroding their purchasing power.

Hyperinflation is typically characterized by price increases exceeding 50% per month, resulting in a vicious cycle where people lose confidence in the currency and seek alternatives, further driving prices up. Historical examples include the hyperinflation in Germany during the Weimar Republic and more recent cases in Zimbabwe and Venezuela, where hyperinflation led to extreme economic instability and significant challenges for the populace.

In contrast, deflation refers to a decrease in the general price level of goods and services, leading to increased purchasing power. Stagflation combines stagnation in economic growth with inflation, creating a unique and challenging economic situation. A recession represents a decline in economic activity but does not specifically indicate a rapid decrease in the purchasing power of currency. Each of these terms encapsulates different economic scenarios and impacts on currency value.