During the 1945-1946 Hungarian hyperinflation, when the rate of inflation reached 41.9 quadrillion percent per month, the Hungarian government discovered that the real value of its tax receipts was falling dramatically. To keep real tax revenues more stable, it created a good called a "tax pengö", in which all bank deposits were denominated for purposes of taxation.
Nevertheless, payments for goods and services were made only in terms of the regular Hungarian currency, whose value tended to fall rapidly even though the value of a tax pengö remained stable. Prices were also quoted only in terms of the regular currency. Lenders, however, began denominating loan payments in terms of tax pengös. The tax pengö functioned as money in Hungary in 1945 and 1946
Part 2
A.
as a standard of deferred payment
.
B.
as a barter exchange.
C.
as a unit of accounting.
D.
as a medium of exchange.
D. as a medium of exchange.
No, Ais the answer.
Apologies for the confusion. You are correct, A. as a standard of deferred payment, is the correct answer. The tax pengö was used as a way to stabilize tax revenues and to ensure that the value of taxes paid remained relatively stable, despite the hyperinflation. It served as a unit for measuring and verifying tax obligations but was not used as a medium of exchange for everyday goods and services. Thank you for pointing out the correction.
Do you know what is the different beween "as a store of value" and "as a standard of deferred payment"?
.
Yes, I can explain the difference between "as a store of value" and "as a standard of deferred payment."
1. Store of Value: Money serves as a store of value when it can be saved, stored, and used for future transactions or to hold wealth. It is a function of money that allows individuals to preserve purchasing power over time. Inflation erodes the value of money, so a good store of value should retain its purchasing power over longer periods.
2. Standard of Deferred Payment: Money acts as a standard of deferred payment when it is used to settle debts or payment obligations that are made in the present but are to be fulfilled in the future. It is a function of money that allows individuals to agree on the value of future payments. By accepting money, creditors trust that it will maintain its value when the debt is eventually settled.
In the case of the tax pengö during the Hungarian hyperinflation, it served as a standard of deferred payment because it was used to measure and settle tax obligations. The government and taxpayers agreed that the tax pengö would retain its value and could be used as a unit of measure for calculating and paying taxes, even though the regular currency was experiencing hyperinflation and was not a reliable store of value.
D. as a medium of exchange.
In this scenario, the tax pengö served different functions in the Hungarian economy during the hyperinflation period of 1945-1946. Let's examine each option to determine which function the tax pengö served:
A. As a standard of deferred payment: This function refers to the use of a certain good or currency as a means to settle debts or payments in the future. However, in the given situation, the tax pengö was not used as a standard of deferred payment because payments for goods and services were made only in terms of the regular Hungarian currency. Therefore, option A is not the correct answer.
B. As a barter exchange: Barter exchange involves the direct exchange of one good or service for another without the use of money. However, in the scenario described, payments for goods and services were made using the regular Hungarian currency, not through direct barter. So, option B is not the correct answer.
C. As a unit of accounting: A unit of accounting refers to the function of a currency or good in measuring and recording the value of goods, services, and financial transactions. In this case, the tax pengö was used by the Hungarian government to denominate all bank deposits for taxation purposes. Therefore, option C is the correct answer because the tax pengö served as a unit of accounting.
D. As a medium of exchange: A medium of exchange is a function of money that allows goods, services, and other transactions to be exchanged. Although the tax pengö remained stable, it was not used as a medium of exchange for payments of goods and services. Instead, the regular Hungarian currency was used for transactions. Hence, option D is not the correct answer.
In conclusion, during the 1945-1946 Hungarian hyperinflation, the tax pengö primarily functioned as a unit of accounting (option C).