The fiscal theory of the price level is the idea that government fiscal policy affects the price level: for the price level to be stable (to control inflation), government finances must be sustainable: they must run a balanced budget over the course of the business cycle, meaning they must not run a structural deficit.
It is a heterodox economic theory, in contrast to the mainstream economic theory of the price level, which states that the price level is primarily or exclusively determined by the money supply in the long-run.
These two contrasting views of prices may or may not contradict one another. By its proponents, the fiscal theory is seen as complementary to the quantity theory, not as replacing it; by its detractors, the fiscal theory is seen as incorrect, and either having no effect or being simply wrong-headed.
Read more about Fiscal Theory Of The Price Level: Statement, History, See Also
Famous quotes containing the words theory, price and/or level:
“every subjective phenomenon is essentially connected with a single point of view, and it seems inevitable that an objective, physical theory will abandon that point of view.”
—Thomas Nagel (b. 1938)
“Money won is twice as sweet as money earned.”
—Richard Price (b. 1949)
“Insurrection:... insurrection as soon as circumstances allow: insurrection, strenuous, ubiquitous: the insurrection of the masses: the holy war of the oppressed: the republic to make republicans: the people in action to initiate progress. Let the insurrection announce with its awful voice the decrees of God: let it clear and level the ground on which its own immortal structure shall be raised. Let it, like the Nile, flood all the country that it is destined to make fertile.”
—Giuseppe Mazzini (1805–1872)