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:
“Freud was a hero. He descended to the “Underworld” and met there stark terrors. He carried with him his theory as a Medusa’s head which turned these terrors to stone.”
—R.D. (Ronald David)
“The car as we know it is on the way out. To a large extent, I deplore its passing, for as a basically old- fashioned machine, it enshrines a basically old-fashioned idea: freedom. In terms of pollution, noise and human life, the price of that freedom may be high, but perhaps the car, by the very muddle and confusion it causes, may be holding back the remorseless spread of the regimented, electronic society.”
—J.G. (James Graham)
“The effort to understand the universe is one of the very few things that lifts human life a little above the level of farce, and gives it some of the grace of tragedy.”
—Steven Weinberg (b. 1933)