19. The Nobel prize winner Milton Friedman argued that \"inflation is always and

Question

19. The Nobel prize winner Milton Friedman argued that "inflation is always and everywhere a monetary phenomenon." Later, the Nobel prize winner Tom Sargent argued that, because of the budget constraint of the government, "inflation is always and everywhere a fiscal phenomenon." What does he mean? a. Inflation is determined by the Quantity Theory. d. Governments with large fiscal imbalances resort to money creation to finance their spending, which generates inflation b. The Central Bank collects taxes and print money, and hence inflation is a fiscal phenomenon . Inflation is a tax on money holdings, and hence it can be viewed as a fiscal phenomenon.

Explanation / Answer

Ans: d. Governments with large fiscal imbalances resort to money creation to finance their spending , which generates inflation.

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