myz-vgb.ru A Business Encyclopedia

Monetarist Theory of Inflation

Definition: The Monetarist Theory of Inflation asserts that the general price level rises only due to the increase in the supply of money, but not proportionally.

The monetarist theory of inflation relates to the work of Milton Friedman, who tried to revive the classical monetary theory (price level rises with a proportionate change in the supply of money) in a modified form. According to him, inflation is always and everywhere is a monetary phenomenon and can be produced more rapidly with an increase in the quantity of money than the increase in output. Although, he believed that prices rise due to the increase in money, such increase is not proportionate.

The classical economist, especially Irving Fisher proposed that the increase in the stock of money is the sole cause of inflation and rise in the price is proportional to the money supply. He had explained this through an equation given below:

MV = PT

And

P = MV/T

Where,
MV = money supply = currency X velocity of money
P = general price level
T = Total number of transactions (Sale and Purchase)

This clearly shows, that the price level (P) increases proportionately with the increase in the money Supply (MV), the total number of transactions (T) remaining constant. This proposition is not acceptable to the modern monetarists and does not agree with the proportional increase in the price level.

Thus, the monetary theory of inflation asserts that price rises only due to the increase in the money supply, but there is no proportional relation between the supply of money and the general price level.

Leave a Reply

Your email address will not be published.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

Shares

Related pages


divestment definefactors that influence elasticity of demanddefinition of organizational theoryselection hrmcheque purchase definitionwhat is the meaning of divestmarketing forecasting definitiondefine stock turnover ratiosuperiority meaning in urduelasticity substitutioncommunication 7cscredit control by rbihow to plot indifference curvegrapevine communication definitionppf account maturitytypes of market structures economicswhat is the definition of oligopolynon collusive oligopolydetermination of price elasticity of demandmeaning of corporate ethicswhat is the erg theorymeaning of diversifyingthe definition of classical conditioningdefinition of dialectictheory of egoismengineering gate examcts chequedefine liquidatingequity theory relationshipsbureaucratic organizational structuresavings account investopediaassumptions of the law of diminishing marginal utilitymeaning of restructuredinnovation schumpeterwho is a autocratic leaderdefine queueingstandard markup pricingwhat is a profitability indexpostofficesavingsleveraged leaseemployees provident fund websitepost office kisan vikas patraequity shareholders and preference shareholderstheory of motivation herzbergdefinition of inventory turnoverbank lockboxdiversify meaningwhat is meant by the term entrepreneurmeaning of intrapreneurimportance of manpower planning in organisationnon deposit taking nbfclpc leadership theorydefinition of subordinatesindifference curve exampleethnocentrism in international business refers to themeaning of ulteriordelegating definitionindifference curve examplevam definitionpolycentrism in international businesswhat is neft transfermarkup pricing definitionojt definitioncaptive pricing examplesmeaning of stratified samplingoperant definitiondefine laissez-faire leadershipteleology ethicsquantitative instruments of monetary policysenior citizen savings schemespearmans correlation coefficientverbal symbols definitionwhat is scalar chaindefine likertjoharry windowdefinition of autocratnet asset turnover definition