Fiscal theory of the price level
Okay kiddo, so the fiscal theory of the price level is a way to explain how prices change in the economy.
First, let's imagine that you have some toys and you want to sell them to your friends. You usually sell them for $1 each, but one day you decide to raise the price to $2. Now your friends might wonder why the price has gone up.
Well, the fiscal theory of the price level says that prices can change depending on how much money there is in the economy. When there is more money floating around, people can afford to pay more for things. And when there is less money, people may need to pay less.
Now, where does this money come from? It can come from the government. When the government spends money on things like building roads or buying toys for kids, it puts more money into the economy. This can cause prices to go up.
On the other hand, when the government takes money out of the economy through things like taxes, there is less money around. This can cause prices to go down.
So, the fiscal theory of the price level says that changes in government spending and taxes can affect how much money is in the economy, and that can affect how much things cost.
First, let's imagine that you have some toys and you want to sell them to your friends. You usually sell them for $1 each, but one day you decide to raise the price to $2. Now your friends might wonder why the price has gone up.
Well, the fiscal theory of the price level says that prices can change depending on how much money there is in the economy. When there is more money floating around, people can afford to pay more for things. And when there is less money, people may need to pay less.
Now, where does this money come from? It can come from the government. When the government spends money on things like building roads or buying toys for kids, it puts more money into the economy. This can cause prices to go up.
On the other hand, when the government takes money out of the economy through things like taxes, there is less money around. This can cause prices to go down.
So, the fiscal theory of the price level says that changes in government spending and taxes can affect how much money is in the economy, and that can affect how much things cost.