A Business Encyclopedia

Modern Theories of Inflation

Definition: The Modern Theories of Inflation follows the theory of price determination. This means the general price level can be determined by aggregate demand and aggregate supply of goods and services. The variations in the general price level are caused by a shift in the aggregate demand and aggregate supply curves.

The modern theories of inflation are in fact the blend of classical and Keynesian theories of inflation. The classical theory laid emphasis on the role of money, i.e., the price rises in proportion to the supply of money, and ignored the non-monetary factors affecting inflation. While, the Keynesian theory laid emphasis on the non-monetary factors, i.e. aggregate demand in the real terms and ignored the effect of monetary expansion (money supply) on the price level.

The modern theories of inflation show that the price level is influenced by one or both of the demand-side and the supply-side factors. The factors which are functional on the demand side are called as the demand-pull factors, and those who operate on the supply-side factors are called as cost-push factors. Thus, there are two types of inflation:

  1. Demand-pull Inflation
  2. Cost-push Inflation

Note: A set of economists argues that the interaction between Demand-pull and cost-push factors cause inflation.

The modern theories of inflation play a vital role in formulating the anti-inflationary policy

Leave a Reply

Your email address will not be published. Required fields are marked *


Related pages

retrenched definitioncharacteristics of sole proprietorshipvertical job enlargementmerger by absorptionexposed meaning in hindiexpectancy theory of motivationasset utilization ratios formulapsychoanalytic approach definitionunitary elastic demand examplecoefficient meaning in mathschumpeter monopolysegmented pricing definitiondefinition of snowballhenri fayolthe laissez faire leadership styledefinition of a oligopolydefine demand pullweakness of performance appraisalthe pluralist perspectiverecurring deposit account definitionfixed input in economicsletters of credit investopediawhat is the meaning of straddlebarth definitionmiller and modiglianinet fixed asset turnovermiller modiglianiwhat is a bank lockboxcash ratio formulatransactional analysis organisational behaviourbargaining means in hindiojt definitionjob evaluation factor comparisondefinition of parachutewhat is laissez faire leadershipdefinition of sociocultural factorssample of stratified sampling in statisticscoercive power definitionethnocentric cultureto outsource definitiondegrees of price elasticity of demand with examplesformula for profit margin ratioauthorised capital meaningbf skinner theory of reinforcementdiminishing marginal utility definition economicscaptive defwhat is operant conditioning in psychologyhierarchical meaning in urduadvantages of sales force automationdefinition of oligopoly marketteleological ethics exampleblake and mouton managerial grid 1964seven c's of communication with examplespaired comparisonteleological perspectivedistinguish between implicit cost and explicit costeconomic income definitiondefinition laissez-faire leadershipemployee remuneration in hrmmeaning of idftypes of oligopoly marketcontractual vmsdefine autocratickinked graphdefinition payback periodexamples of promotion mixdebentures meaning in accountingsamuelson trade cycle modelemployees provident fundswhat is retained earningkisan vikas patra post officewhat is oligopoly in economicssealed bid pricing strategydefine elastic in economicswhat is preference share capital