The Classical Theory of Inflation and Its Uses Today
The classical theory of inflation attributes sustained price inflation to excessive growth in the quantity of money in circulation. For this reason, the classical theory is sometimes called the “quantity theory of money,” even though it is a theory of inflation, not a theory of money. More specifically, the classical theory of inflation explains how the aggregate price level gets determined through the interaction between money supply and money demand.
The classical theory of inflation attributes sustained price inflation to excessive growth in the quantity of money in circulation. For this reason, the classical theory is sometimes called the “quantity theory of money,” even though it is a theory of inflation, not a theory of money. More specifically, the classical theory of inflation explains how the aggregate price level gets determined through the interaction between money supply and money demand.
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