What type of inflation is Milton Friedman referring to when he says that “inflation is always and everywhere a monetary phenomenon?”
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What type of inflation is Milton Friedman referring to when he says that “inflation is always and everywhere a monetary phenomenon?” |
Explanation
Continued inflation is likely to be induced by the demand side as the continuous rise in the aggregate demand causes the price level to rise continuously. This increase in the aggregate demand can be caused by an increase in any of its factors which are the consumption expenditure, government spending, investment expenditure, and net exports.
However, an increase in one of the components often gets offset by a decline in the other component so that the aggregate demand does not change. For instance, increased spending by the government is often associated with a decreased private spending causing the aggregate demand to remain unchanged or change very little.
One factor that can cause the aggregate demand to rise continuously is the increase in the money supply. Continuous rise in the money supply causes the aggregate demand to rise continuously and thus cause continued inflation. This in turn led the economist to define inflation as a monetary phenomenon.
Verified Answer
The Economist has referred to continued inflation which is demand induced through rise in continuos supply of money.
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