Four of the principal theories of inflation are the quantity theory, the Keynesian theory, the ‘cost-push’ theory, and the structural theory. In economics, inflation (or less frequently, price inflation) is a general rise in the price level in an economy over a period of time, resulting in a sustained drop in the purchasing power of money. Key Words- Inflation, Macroeconomic Theory I. INTRODUCTION The study of causes of inflation has probably given rise to one of the most significant macroeconomic debates in the field of economics. For proper explanation of inflation one should go deeper and enquire into the operation of structural forces which has caused excessive growth in money supply in these developing economies. Structural Inflation Inflation that occurs because a government pursues an excessively loose monetary policy. PROJECT ON THEORIES OF INFLATIONPREPARED BY:- SHAGUN,SACHIN,DIVYA, SOUMYA & MEHJABI 2. The structuralists argued that increase in investment expenditure and the expansion of money supply to finance it are only proximate and not the ultimate factors responsible for inflation in the developing countries. According to the structuralist school of thought, the above bottlenecks and constraints are in the social, political and economic structure of these countries. The basic idea is that at high energies matter is better described by fields than by classical means. The concepts introduced here are not complicated, but they produce some important results and a robust framework for further research into the problem of designing efficient policies to maintain price stability without harming long-term growth rates or sacrificing the pursuit of full employment. Before publishing your articles on this site, please read the following pages: 1. This video is highly rated by … stagflation is a condition with a large increase in. Without real action to reduce structural unemployment, the unemployment rate may remain high even after a recession has ended; structural unemployment is also problematic in that it can raise the natural rate of unemployment as well. It was developed around 1980 to explain several puzzles with the standard Big Bang theory, in which the universe expands relatively gradually throughout its history. which theory of inflation suggest the government has mismanaged the economy. [4] Prohibited Content 3. Besides, use of backward agricultural technology also hampers agricultural growth. Learn vocabulary, terms, and more with flashcards, games, and other study tools. According to them, one should go deeper into the question as to why aggregate output, especially of food-grains, has not been increasing sufficiently in the developing countries to match the increase in demand brought about by the increase in investment expenditure, and money supply. INFLATION “Inflation is a state of generally rising prices and falling value of money” It is a rise in general level of prices of goods and services in an economy over a period of time and subsequently, the purchasing power is falling. Authors; Authors and affiliations; François Perroux; Chapter. Consequently, the government has been forced to resort to-excessive deficit financing (that is, creation of new currency) which has caused excessive growth in money supply relative to increase in output year after year and has therefore resulted in inflation in the developing countries. The only difference between the two branches is what they consider to be the main cause of structural change. The well-known economists, Myrdal and Straiten who have proposed this theory have analysed inflation in these developing countries in terms of structural features of their economies. According to him, inflation cannot occur alone by demand and cost factors, but it is the cumulative effect of … Economic theory therefore predicts that inflation expectations should influence many economic decisions. Copyright 10. structural inflation as “ that component of the inflation that is cleaned of the temporary shocks and can be detected on a long term, being generated by persistent monetary and non-monetary factors. ScienceDirect ® is a registered trademark of Elsevier B.V. ScienceDirect ® is a registered trademark of Elsevier B.V. UK inflation post-war. This book is not a treatise on war-economics, and it does not pretend to provide any general theory of inflation; it is a theoretical study inspired by some central economic problems which have appeared during and after the second World War in many countries, including the Scandinavian countries. The wage increase and the rising cost of various inputs provide the initial impulse to inflation. the structuralist theory of inflation and structural inflation in chile 1950 1972 the lagging food hypothesis revisited Sep 20, 2020 Posted By Gilbert Patten Public Library TEXT ID a119b81ec Online PDF Ebook Epub Library inflation in chile 1950 1972 the lagging food hypothesis revisited save to mendeley export to bibtex export to ris email citation authors paldam martin close school of Pandit of Delhi School of Economics has also felt the need for distinguishing price behaviour in the Indian agricultural sector from that in the manufacturing sector. by structural policy issues (Khan, 1980; Grauwe and Polan, 2005; Khan and Schimmelpfennig, 2006). This theory argues that inflation is not a monetary phenomenon, as stated previously, in which the money supply is responding to inflation rather than initiative it. In trying to understand the universe, two major problems remained: the flatness problem and the horizon problem. Myrdal and Streeten have argued that it is not correct to apply the highly aggregative demand- supply model for explaining inflation in the developing countries. Copyright © 2020 Elsevier B.V. or its licensors or contributors. These elements are: (1) relative prices that change when economic structure changes; (2) downward inflexibility of (some) money prices; and (3) a passive money supply closing the deflationary gap caused by price increases. The most important aspect of inflation is that it provides a possible model for the origin of structure in the Universe, and key results are reviewed, along with a discussion of the current observational situation and outlook. We use cookies to help provide and enhance our service and tailor content and ads. Structuralism in psychology (also structural psychology) is a theory of consciousness developed by Wilhelm Wundt and his student Edward Bradford Titchener.This theory was challenged in the 20th century. According to structural theory of inflation, market power is one of the factors that cause inflation, but it is not the only factor. But socio-economic and political structure of these countries is such that it is not possible for the Government to raise enough resources through taxation, borrowing from the public, surplus generation in the public sector enterprises for investment in the projects of economic development. Further, they argue why investment expenditure has not been fully financed by voluntary savings and as a result excessive deficit financing has been done. 5 Economic theory tells us that inflation can be restrained by a policy to allow the domestic currency to appreciate and deflation can be mitigated by a policy to allow the domestic currency to depreciate. This requires large resources to finance public sector investment in various industries. In this paper we explore some of the key contributions to the macroeconomic literature which appeared since the late 1950s. People who have experienced the high inflation era in the 70’s should remember well how economy had been badly impacted by high inflation. According to structuralists, these structural features of the developing countries make the aggregate demand-supply model of inflation inapplicable to them. For example, in India, huge amount of resources were used for investment in basic heavy industries started in the public sector. The sectoral demand shift theory of inflation emphasizes the fact that prices are highly flexible upwards but relatively rigid downwards, for example, there may be rise in prices in the agricultural sector where there is scarcity whereas price stability in the … The price stability target and quantitative and qualitative monetary easing introduced by the Bank of Japan in 2013 are likely to raise and stabilize inflation expectations in Japan. 4. According to them, there is a lack of balanced integrated structure in them where substitution possibilities between consumption and production and inter-sectoral flows of resources between different sectors of the economy are not quite smooth and quick so that the inflation in them cannot be reasonably explained in terms of aggregate demand and aggregate supply. Apart from demand and supply factors, Inflation sometimes is also caused by structural bottlenecks and policies of the government and the central banks. Theories of Inflation 1. (3) Foreign exchange bottleneck. Keynes contrasted short-term and long-term expectations in his General Theory. Theory of Structures, to analyse a given structure under speci-fied loading and possibly other disturbances such as tempera-ture variation or movement of supports. In a refined version, the quantity theory was revived by Milton Friedman and other University of Chicago economists in the 1950s and ’60s. Structural theory of inflation has been put forward as an explanation of inflation in the developing countries especially of Latin America. The other important bottleneck which the developing countries have to encounter is the shortage of foreign exchange for financing needed imports for development. Inflation theory the French national income is approximately constant and very considerable was to be ensured first few.. Please read the following pages: 1 significant macroeconomic debates in the developing countries relate to the literature! 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