Management Notes

Reference Notes for Management

“Inflation is a state in which the value of money is falling i.e., prices are rising”. Who said this?

“Inflation is a state in which the value of money is falling i.e., prices are rising”. Who said this?

    1. Hansen
    2. Keynes
    3. Crowther
    4. Fisher   

Correct Answer: Fisher

Answer Explanation

Inflation is a fundamental concept in economics that has significant implications for an economy’s stability and growth. As defined by economists, inflationary trends are those that occur when the value of money falls, resulting in a general increase in prices.

The correct answer is (d) Fisher Irving Fisher, a famous American economist who said, “Inflation is a state where the value of money is falling, i.e., prices are rising.” His work on the relationship between money, prices, and interest rates contributed substantially to the field of economics.

His Quantity Theory of Money, published in his work “The Purchasing Power of Money” (1911), laid the foundation for understanding the causes and consequences of inflation. According to Fisher, inflation is characterized by an erosion of purchasing power as the general price level rises.

According to Irving Fisher, inflation resonates with economic intuition. Inflation occurs when the supply of money increases compared to the supply of goods and services, resulting in a rise in demand and, subsequently, an increase in prices. It is a concept that captures the essence of inflation, which is the gradual erosion of the value of money over time.

Modern macroeconomic analysis and policy formulation are based on Fisher’s Quantity Theory of Money, which emphasizes the connection between money supply and price level.

Why the other options are not correct

a. Hansen:

Hansen was a significant economist known for his contributions to Keynesian economics. Although Hansen discussed various aspects of macroeconomics, his work was not primarily focused on defining inflation, so option (a) is incorrect.

b. Keynes:

A pivotal figure in economics, John Maynard Keynes formulated Keynesian theory, which heavily influenced modern macroeconomics. However, he primarily focused on aggregate demand, unemployment, and government intervention to stabilize economies. As presented in the statement, Keynes discussed inflation as a possible outcome of excessive aggregate demand, but he did not provide a concise definition of the term.

c. Crowther:

Sir Edwin Crowther was a British economist who contributed to economic development and planning. However, his work did not emphasize inflation definition in the manner presented in the statement. The focus of Crowther’s work was on economic policy and planning, so option (c) is incorrect.

Conclusion

Conclusion: To conclude, Irving Fisher’s statement “Inflation is a state in which money’s value is falling i.e., prices are rising” is a good description of inflationary trends. For understanding inflation’s dynamics, Fisher’s contributions to the Quantity Theory of Money and emphasis on the relationship between money supply and price level provide a solid foundation.

Other prominent economists such as Hansen, Keynes, and Crowther also made significant contributions to economics, but their works did not provide a concise definition of inflation as presented here. As a result of Fisher’s viewpoint, we gain a better understanding of inflation, which leads to effective economic analysis and policymaking.

Which of the following is a monetary measure to control inflation in an economy?

Bibisha Shiwakoti

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