The Fiscal Theory of the Price Level says that money has value because the government accepts it for taxes, and inflation is fundamentally a fiscal phenomenon. It can also be viewed as a model of monetary–fiscal policy coordination. The equation of the FTPL is as follow:
where real debt (which is nominal debt divided by the price level) is always equal to the present value of all the future real primary surplus of the government. According to this theory, the price level of a country should rise together with the level of nominal debt of the government, the discount rate of government debts, or a fall in future real primary surplus, hold other things constant.
>>> Follow EconReporter on Twitter - @WITGT21