Classical Theory of Inflation says that money is the asset which is utilized by people to purchase goods and services on a regular basis. Money is the mode of exchange in every economy at the present day. Inflation occurs in an economy when the overall price level increases and the demand of goods and services increases.
There is another aspect of inflation which is coined as hyperinflation. Hyperinflation is another form of inflation which occurs when the price rates increase extraordinarily. The price rates reach an all time high like exceeding 50% per month when an economy is grasped by the phenomenon of hyperinflation. A good instance of such an inflation occurred in 1920 in Germany when their economy shot up to an extraordinary height. Germany experienced a hyperinflation during that period.
Determinant of Theory of Inflation
The classical theory of inflation owes its genesis to certain factors. Inflation is determined by the quantity theory of money. This theory which is contained in the classical theory of inflation is employed to explain the most important and long run determinants of inflation rate and price level. Inflation is a phenomenon which takes the whole economy into its grasp. It spreads across the whole of the economy. It is such a phenomenon which impacts the whole of the economy and is concerned about the value of the mode of exchange in an economy that is, it concerns itself with money. With the rise in the supply of money the price rate rises and the value of money falls that is devaluation of money takes place.
The supply of money is controlled by the FED through a policy of open market. Open market is a powerful tool of controlling the supply of money. The demand of money actually depends on a lot of factors. These factors include interest rates, average level of prices in the economy. Every economy endeavors to reach an equilibrium where the demand and supply of the money becomes equal.
India needs economic growth for sustainable development, which in turn requires access to clean, convenient and reliable energy. An estimated 400 million people still lack access to electricity, and blackouts are still common across the country. A combination of rapidly increasing energy demand and fuel imports plus growing concern about economic and environmental consequences is generating growing calls for innovative policies and mechanisms to promote increased use of abundant, sustainable, renewable resources.
Professor at Columbia University. Recipient of the Nobel Memorial Prize in Economic Sciences in 2001 & the John Bates Clark Medal in 1979. Author of "Freefall: America, Free Markets", "The Sinking of the World Economy", "Globalisation and its Discontents" & "Making Globalisation Work".
Chancellor of the Exchequer of the United Kingdom from 1992 to 2007. Prime Minister of the UK between 2007 and 2010. Inaugural 'Distinguished Leader in Residence' at New York University. Advisor at World Economic Forum
Mario I. Blejer is a former governor of the Central Bank of Argentina and former Director of the Center for Central Banking Studies at the Bank of England. Eduardo Levy Yeyati is Professor of Economics at Universidad Torcuato Di Tella and Senior Fellow at The Brookings Institution.