"Inflation is always and everywhere a monetary phenomenon."
A steady increase in MS affects on graph
Occurs due to:
Demand-pull inflation can eventually trigger cost-push inflation.
T: When a demand-pull inflation produces higher inflation rates, expected inflation eventually rises. This causes workers to demand higher wages so their real wages do not fall.
DEF = G - T = (change in)MB + (change in)B
If the DEF is financed by an increase in B, there is no effect on the MB. Hence no effect on the MS.
But, if the DEF is not financed by an increase in B, the MB and MS increase.
Named by Barro of Harvard Univ. after the 19th c. British economist, Ricardo.
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