Exercise 1: Why Overnight Price Liberalization Specifically Produced Hyperinflation — Possible Solution
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This exercise asks you to explain the real economic mechanism connecting
the speed of the reform - freeing prices all at once - to the specific
outcome of hyperinflation, not just note that prices rose.

THE REAL, SUPPRESSED CONDITIONS BEFORE LIBERALIZATION
Under the Soviet planned economy, prices had been artificially fixed by
the state for decades, often well below what genuine supply and demand
would have produced. This created a real, accumulated gap between the
official price of goods and their actual scarcity value - real demand
for many goods had been suppressed only by the fact that prices were
kept artificially low, not because people didn't want them.

WHAT HAPPENED WHEN PRICES WERE FREED ALL AT ONCE
On 2 January 1992, nearly all of that suppressed pricing pressure was
released simultaneously across the entire economy. Because the change
happened overnight rather than gradually, there was no real mechanism -
no staged adjustment, no sector-by-sector phasing - to let prices settle
toward a new equilibrium in a controlled way. Every price in the economy
adjusted upward at once, and each round of price increases fed directly
into the next, since wages, other goods' prices, and the ruble's own
value were all moving together in the same direction simultaneously.

WHY GRADUAL LIBERALIZATION WOULD HAVE BEHAVED DIFFERENTLY
A slower, staged liberalization would have let each sector's own prices
adjust and stabilize before the next sector's controls were lifted,
giving the economy real time to find a new equilibrium without every
price chasing every other price upward in the same instant. The
"shock" in shock therapy was precisely this simultaneity - all the
suppressed pricing pressure released in one moment rather than absorbed
gradually.

ANSWER: Overnight price liberalization produced hyperinflation because it
released years of artificially suppressed pricing pressure across the
entire economy simultaneously, with no staged mechanism to let individual
sectors adjust in sequence - every price chasing every other price
upward at once is precisely the self-reinforcing dynamic that produces
hyperinflation, rather than the more contained, one-time price
adjustment a gradual, sector-by-sector liberalization would have caused.

WHY THIS WORKS AS AN ANSWER
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It identifies the specific real mechanism (simultaneous release of
suppressed pricing pressure with no staged adjustment) that connects the
speed of the reform to the specific outcome of hyperinflation, rather
than simply describing hyperinflation's symptoms.