Answer to Question #102029 in Macroeconomics for Jorge Ferreira

Question

What's the main differences between the fiscal theory of inflation and the theory of the price level?

Answer 1

The fiscal theory of the price level is the idea that the government fiscal policy affects the price level. For the price level to be stable , 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. Therefore, if prices stabilize the level of nflation is contolled.