What can excessive inflation lead to in terms of economic stability?

Excessive inflation can lead to hyperinflation, which is a condition characterized by extremely high and typically accelerating rates of inflation. In such scenarios, the value of currency erodes rapidly, causing prices for goods and services to soar uncontrollably. This can create significant economic instability, as consumers and businesses struggle to keep pace with the rapidly changing prices.

Hyperinflation often undermines the functionality of money as a medium of exchange and a store of value, leading to decreased consumer confidence and spending. People may resort to barter or use foreign currencies, further destabilizing the economy. Hyperinflation can also lead to severe consequences such as loss of savings, investment flight, and social unrest as people find their purchasing power diminished.

In contrast, the other options do not directly relate to the consequence of excessive inflation in terms of triggering instability. A 'Base Year' is used in economic analysis as a reference point for calculating indices, while 'Cost of Living Adjustments' are mechanisms to help keep wages in line with inflation, mitigating its effects rather than indicating instability. 'Substitution Bias' refers to the tendency of consumers to replace expensive items with cheaper alternatives and is more about measurement bias in inflation indices than a consequence of inflation itself. Therefore, hyper