Runaway

Definition

Runaway is a term used to describe a situation that has rapidly become out of control. In the context of economics, it frequently refers to runaway inflation, where the inflation rate accelerates to such a degree that it becomes challenging for the central bank or the government to manage. This term can also apply to other undesirable economic and financial phenomena, including debt, costs, or market bubbles, where the escalation becomes uncontrollable and causes significant disruption.

Examples

Runaway Inflation: In the late 2000s, Zimbabwe experienced runaway inflation, with rates skyrocketing to the extent that prices could double within hours. The country’s inflation rate reached an estimated 79.6 billion percent month-on-month in November 2008.
Runaway Credit Growth: During the early 2000s housing bubble in the United States, there was runaway growth in mortgage lending, leading to unsustainable housing prices and contributing to the financial crisis of 2008.
Runaway Debt: Greece faced a situation of runaway national debt in the late 2000s, leading to a severe sovereign debt crisis and necessitating bailouts from the European Union and International Monetary Fund.

Frequently Asked Questions

Q1: What is runaway inflation?
A1: Runaway inflation is an economic condition where prices increase rapidly and uncontrollably, often eroding the purchasing power of money at an extreme rate.

Q2: Which economic policies can help control runaway inflation?
A2: Policies such as tightening monetary policy by increasing interest rates, reducing government spending, and implementing price controls may help control runaway inflation.

Q3: How does runaway inflation affect the economy?
A3: Runaway inflation can erode savings, diminish purchasing power, create uncertainty in markets, discourage investment, and lead to economic instability.

Q4: Can runaway conditions apply to other aspects besides inflation?
A4: Yes, runaway conditions can apply to various economic phenomena such as runaway debt, bubble growth in asset prices, and uncontrolled credit expansion.

Q5: What are the historical examples of runaway economic phenomena?
A5: Historical examples include the hyperinflation in Zimbabwe during the late 2000s and the housing market bubble in the U.S. in the 2000s.

Inflation: The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Hyperinflation: An extremely high and typically accelerating inflation rate, often exceeding 50% per month.

Sovereign Debt Crisis: A situation where a country cannot meet its debt obligations, leading to potential default and economic turmoil.

Monetary Policy: The process by which a central bank manages the supply of money and interest rates to control inflation and stabilize the currency.

Market Bubble: A situation where asset prices inflate rapidly to levels that are unsustainable, often followed by a sharp decline.

Online References

Suggested Books for Further Studies

“Economics in One Lesson” by Henry Hazlitt
“Principles of Economics” by N. Gregory Mankiw
“Understanding Inflation and the Implications for Monetary Policy” by Peter N. Ireland

Fundamentals of Runaway in Economics Basics Quiz

### What does the term 'runaway' generally refer to in economics? - [x] A situation that has rapidly become out of control. - [ ] A gradual and controlled increase in economic activity. - [ ] A steady decline in market prices. - [ ] The complete elimination of inflation. > **Explanation:** In economics, 'runaway' describes a situation that has rapidly become out of control, often referring to extreme events like runaway inflation. ### What was an infamous example of runaway inflation in the late 2000s? - [ ] Argentina - [x] Zimbabwe - [ ] Greece - [ ] Brazil > **Explanation:** Zimbabwe experienced runaway inflation in the late 2000s with rates reaching extreme levels. ### Which of the following best describes runaway inflation? - [ ] Controlled increase in prices. - [ ] Gradual monetary expansion. - [x] Rapid and uncontrollable rise in price levels. - [ ] Decline in purchasing power over decades. > **Explanation:** Runaway inflation is characterized by a rapid and uncontrollable rise in price levels. ### What economic phenomenon describes rapidly escalating prices in asset categories? - [x] Market Bubble - [ ] Demand Deflation - [ ] Stagflation - [ ] Sustainable Growth > **Explanation:** A market bubble describes rapidly escalating prices in asset categories that are unsustainable. ### Which policy action is frequently used to control runaway inflation? - [x] Increasing interest rates. - [ ] Decreasing government spending. - [ ] Lowering prices controls. - [ ] Increasing currency printing. > **Explanation:** Increasing interest rates is a common monetary policy action used to control runaway inflation. ### How does runaway inflation typically impact savings? - [ ] Enhances savings value. - [ ] Prevents investments. - [x] Erodes savings' value. - [ ] Stagnates the economy. > **Explanation:** Runaway inflation erodes the value of savings due to the rapid loss of purchasing power. ### What term describes an unsustainable increase in prices of assets followed by a sharp decline? - [ ] Hyperinflation - [x] Market Bubble - [ ] Stagflation - [ ] Recession > **Explanation:** A market bubble describes an unsustainable increase in asset prices, often followed by a sharp decline. ### When controlling runaway inflation, which entity typically tightens monetary policy by increasing interest rates? - [ ] Local Governments - [ ] International Bodies - [x] Central Banks - [ ] Private Financial Institutions > **Explanation:** Central Banks typically tighten monetary policy by increasing interest rates to control runaway inflation. ### What is the primary impact of runaway inflation on an economy? - [ ] Stability in markets. - [ ] Increased savings rates. - [x] Economic instability. - [ ] Controlled price increases. > **Explanation:** Runaway inflation leads to economic instability due to the uncontrolled rise in prices. ### What historic event in the U.S. involved runaway credit growth leading to a financial crisis? - [ ] The Great Depression - [ ] The Dot-com Bubble - [ ] The COVID-19 Pandemic - [x] The Housing Bubble of the 2000s > **Explanation:** The housing bubble of the 2000s involved runaway credit growth, leading to the financial crisis of 2008.

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