scholarly journals A Mathematical Model of MMT (Modern Monetary Theory) with Profit Return

2021 ◽  
Vol 11 (4) ◽  
pp. 39
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Technological Progress ◽  
Budget Deficit ◽  
Full Employment ◽  
Returns To Scale ◽  
Perfect Competition ◽  
Budget Deficits ◽  
Price Inflation ◽  
The Difference ◽  
Growing Economy ◽  
The One

Even in perfect competition there is a positive profit return if the good is produced with decreasing returns to scale technology. Using a two-periods overlapping generations (OLG) model with production under perfect competition with decreasing returns to scale technology in which the economy grows by technological progress and the older generation consumers receive the profit returns, we consider the problem of budget deficit under economic growth. We will show the following results. 1) We need a budget deficit to achieve full employment under constant price when the economy grows by technological progress. 2) If the budget deficit exceeds the level necessary to maintain full employment in a growing economy under constant price, inflation will be triggered. We need a stable budget deficit to prevent further inflation. 3) If the budget deficit is insufficient to maintain full employment, it will cause a recession with involuntary unemployment. We can overcome a recession and restore full employment caused by insufficient budget deficit by a budget deficit larger than the one necessary and sufficient to maintain full employment without a recession. We should not offset the deficit created to overcome the recession by subsequent surpluses because we can maintain full employment through constant budget deficits. Also, we show that in each case the budget deficit equals the difference between the net savings of the younger generation consumers and that of the older generation consumers.

scholarly journals Very Simple Mathematical Model of MMT (Modern Monetary Theory)

2021 ◽  
Vol 11 (3) ◽  
pp. 78
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Technological Progress ◽  
Budget Deficit ◽  
Full Employment ◽  
Returns To Scale ◽  
Perfect Competition ◽  
Monetary Theory ◽  
Budget Deficits ◽  
Growing Economy ◽  
The One ◽  
Constant Returns To Scale

The purpose of this paper is to provide a concise theoretical and mathematical foundation for the major parts of the debate in the recently discussed school of economics called Modern Monetary Theory (MMT), while maintaining the basics of the neoclassical microeconomic framework, such as utility maximization of consumers using budget constraints and utility functions, and equilibrium of demand and supply of goods under perfect competition with constant returns to scale technology. By a two-periods overlapping generations (OLG) model in which the economy grows by technological progress, we will show that: 1) We need a budget deficit to achieve full employment with constant price when the economy grows by technological progress. This budget deficit should not be offset by future surplus; 2) A budget deficit that exceeds the level necessary to maintain full employment in a growing economy with constant price will cause inflation. A stable budget deficit is required to prevent further inflation; 3) A budget deficit that is insufficient to maintain full employment will cause a recession with involuntary unemployment. A budget deficit larger than the one necessary and sufficient to maintain full employment without a recession can overcome a recession caused by insufficient budget deficit and restore full employment. The deficit created to overcome the recession should not be offset by subsequent surpluses, since full employment can then be maintained through constant budget deficits.

scholarly journals Mathematical Model of MMT with Profit Return under Monopolistic Competition

2021 ◽  
Vol 8 (2) ◽  
pp. 65
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Budget Deficit ◽  
Monopolistic Competition ◽  
Full Employment ◽  
Returns To Scale ◽  
Budget Deficits ◽  
Price Inflation ◽  
The Difference ◽  
Growing Economy ◽  
Necessary And Sufficient ◽  
Constant Returns To Scale

Even under constant returns to scale technology there is a positive profit return if the goods are produced in monopolistic competition. By a two-periods overlapping generations (OLG) model with production in monopolistic competition under constant returns to scale in which the economy grows by technological progress and the older generation consumers receive the profits, we consider the problem of budget deficit. We show that the budget deficit equals the difference between the net savings of the younger generation consumers excluding the profits received in the future and that of the older generation consumers in each of the following cases. Also, the following results will be proved. 1) A budget deficit is necessary to realize full employment with constant price when the economy grows. 2) If the budget deficit exceeds the level necessary and sufficient to maintain full employment in a growing economy with constant price, inflation will occur. A stable budget deficit is necessary to prevent further inflation. 3) If the budget deficit is insufficient to maintain full employment, a recession with involuntary unemployment occurs. We can overcome a recession and restore full employment making a budget deficit larger than the one necessary and sufficient to maintain full employment without a recession. Since we can maintain full employment by constant budget deficits, we should not offset the deficit created for overcoming the recession by budget surpluses.

scholarly journals An Elementary Mathematical Model for MMT (Modern Monetary Theory)

2021 ◽  
Vol 13 (3) ◽  
pp. 1
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Technological Progress ◽  
Utility Maximization ◽  
Budget Deficit ◽  
Monopolistic Competition ◽  
Full Employment ◽  
Supply And Demand ◽  
Profit Maximization ◽  
Static Model ◽  
Monetary Theory ◽  
Necessary And Sufficient

In recent years, a school of economics called MMT (Modern Monetary Theory) has been attracting attention, but it has not been analyzed theoretically or mathematically. This study aims to provide a theoretical basis for the skeleton of the MMT argument, while maintaining the basics of the neoclassical microeconomic framework, such as utility maximization of consumers by means of utility functions and budget constraint, profit maximization of firms in monopolistic competition, and equilibrium of supply and demand of goods. Using a simple static model that includes economic growth due to technological progress, we will argue that: 1) a continuous budget deficit is necessary to maintain full employment when the economy is growing, and that this deficit does not have to be covered by future surpluses; 2) Inflation is caused when the actual budget deficit exceeds the level necessary and sufficient to maintain full employment. In order to avoid further inflation, it is necessary to maintain a certain level of budget deficit; 3) A shortfall in the budget deficit leads to recession and involuntary unemployment. To recover from this, a budget deficit that exceeds the level necessary to maintain full employment is required. However, since a continuous budget deficit is necessary after full employment is restored, the deficit created to overcome the recession does not need to be covered by future budget surpluses, nor should it be.

scholarly journals Growth and ideas in a perfectly competitive world: A complement

2021 ◽  
Vol 10 (2) ◽  
pp. 157-163
Author(s):  
Vincent Boitier
Keyword(s):  
Growth Model ◽  
Monopolistic Competition ◽  
Competitive Equilibrium ◽  
Returns To Scale ◽  
Perfect Competition ◽  
Household Economy ◽  
Short Article ◽  
Long Run ◽  
Balanced Growth Path ◽  
The One

In this short article, I build an idea-based growth model with perfect competition in a representative household economy. I obtain significant findings that confirm Boitier (2019). First, a competitive equilibrium, increasing returns to scale, and innovations can be tenable. For that, firms must raise capital from shareholders, and the production function must show decreasing returns to scale in the stock of ideas and in labor. Second, the developed idea-based growth model admits a balanced growth path similar to the one provided in an idea-based growth model with monopolistic competition. Whether innovations are competitive or thrive under monopolistic competition does not constitute an engine-driving long-run growth. Importantly, this reconciles Romer (1990, 2015) with Boldrin and Levine (2008).

Fiscal Policy in Europe

2007 ◽  
Vol 201 ◽  
pp. 33-36 ◽  
Author(s):  
Ray J Barrell ◽  
Sylvia Gottschalk
Keyword(s):  
Budget Deficit ◽  
Stochastic Simulations ◽  
Forecast Errors ◽  
Budget Deficits ◽  
Government Budget ◽  
The Past ◽  
Large Numbers ◽  
The Difference ◽  
The Government ◽  
One Year

In the past twelve months the government budget situation in Germany has improved markedly, and the budget deficit has moved from 3.2 per cent of GDP in 2005 to 1.7 per cent in 2006, with further improvements in prospect. Over the same period in France, the budget deficit moved marginally from 3 per cent of GDP in 2005 to 2.5 per cent of GDP in 2006. The prospects for further improvement appear limited as the new government plans to cut taxes to stimulate the economy. Projections for budget deficits are very uncertain, as they are the difference between two large numbers (receipts and spending) that are difficult to predict accurately. Figures 1 and 2 plot the errors around our budget projections for France and Germany based on stochastic simulations on NiGEM. The 95 per cent confidence limit for our forecast one year ahead is around 1 per cent of GDP around our central forecast, and uncertainty increases into the future. As we can see from figures 3 and 4, our forecast errors for France and Germany have been well within the 95 per cent bands in the past three years, except for our one year ahead forecast for Germany for 2006. The budget improved by 1.5 per cent of GDP more than we had anticipated, and this appears to have been due to unexpectedly high tax receipts, rather than to changed policy.

Involuntary Unemployment as a Nash Equilibrium and Fiscal Policy for Full Employment

2021 ◽  
pp. 2150018
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Nash Equilibrium ◽  
Fiscal Policy ◽  
Budget Deficit ◽  
Full Employment ◽  
Aggregate Demand ◽  
Fiscal Policies ◽  
Budget Deficits ◽  
Overlapping Generations Model ◽  
Involuntary Unemployment ◽  
Game Theoretic

This study aimed to provide a game-theoretic interpretation of the analyses of involuntary unemployment by deficiency of aggregate demand and fiscal policy to achieve full employment using an overlapping generations model. We showed that involuntary unemployment is in a Nash equilibrium of a game with a firm and consumers. Moreover, we showed that full employment can be achieved through fiscal policies that create budget deficits in recessionary conditions with involuntary unemployment. Once full employment is achieved, it can be sustained without a budget deficit.

scholarly journals On Budget Deficit under Economic Growth: Towards a Mathematical Model of MMT

2021 ◽  
Vol 10 (1) ◽  
pp. 36
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Economic Growth ◽  
Mathematical Model ◽  
Population Growth ◽  
Mathematical Analysis ◽  
Technological Progress ◽  
Budget Deficit ◽  
Overlapping Generations ◽  
Full Employment ◽  
Monetary Theory ◽  
Olg Model

Recently, a school of thought called Modern Monetary Theory (MMT) has been attracting attention, but it has not received much theoretical or mathematical analysis. In this paper, we examine the theoretical validity of the MMT argument using an overlapping generations (OLG) model that includes economic growth due to population growth, and give a generally positive evaluation of MMT. The basic idea is that a certain level of continuous budget deficit is necessary to maintain full employment when the economy is growing, that inflation occurs when the budget deficit exceeds that level, that a recession occurs when the budget deficit falls below that level, and involuntary unemployment occurs. In order to recover from a recession, a budget deficit in excess of that level is required, and that deficit need not be covered by a future budget surplus. The same can be said for growth resulting from technological progress.

scholarly journals An Econometric Analysis of Deficit Budget, Money Supply and Inflation in Nepal

2013 ◽  
Vol 28 (1-2) ◽  
pp. 315-324
Author(s):  
Tara Prasad Bhusal
Keyword(s):  
Money Supply ◽  
Budget Deficit ◽  
Econometric Analysis ◽  
The Other ◽  
Causal Connection ◽  
Fiscal Policies ◽  
Budget Deficits ◽  
Inflationary Pressure ◽  
Long Run ◽  
The One

High money supply (M2) and high budget deficits (BD) both are equally responsible for higher rate of inflation. Moreover, inflationary pressure gets more momentum when money supply and budget deficits both increase together. The empirical evidence of Nepal also supports this hypothesis. Present paper re-examines this issue in the context of Nepal by using econometric analysis. The empirical results reveal that long run inflation is not only related with higher money supply but also to budget deficit. On the one hand, there is unidirectional causal relationship between money supply with inflation and similarly budget deficit with inflation. On the other, the supply of money has no causal connection with budget deficit. Hence the finding implies that both monetary and fiscal policies are important to control inflation in Nepal.

scholarly journals Fiscal Policy as a Solution to Involuntary Unemployment

Ekonomika ◽  
2021 ◽  
Vol 100 (2) ◽  
pp. 63-83
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Fiscal Policy ◽  
Budget Deficit ◽  
Monopolistic Competition ◽  
Full Employment ◽  
Returns To Scale ◽  
Profit Maximization ◽  
Involuntary Unemployment ◽  
Game Theoretic ◽  
Constant Returns To Scale ◽  
Constant Prices

We show the existence of involuntary unemployment based on consumers’ utility maximization and firms’ profit maximization behavior under monopolistic competition with increasing, decreasing or constant returns to scale technology using a three-periods overlapping generations (OLG) model with a childhood period as well as younger and older periods, and pay-as-you-go pension for the older generation, and we analyze the effects of fiscal policy financed by tax and budget deficit (or seigniorage) to achieve full-employment under a situation with involuntary unemployment. Under constant prices we show the following results. 1) If the realization of full employment will increase consumers’ disposable income, in order to achieve full-employment from a state with involuntary unemployment, we need budget deficit (Proposition 1). 2) If the full-employment state has been achieved, we need balanced budget to maintain full-employment (Proposition 2). We also consider fiscal policy under inflation or deflation. Additionally, we present a game-theoretic interpretation of involuntary unemployment and full-employment. We also argue that if full employment should be achieved in equilibrium, the instability of equilibrium can be considered to be the cause of involuntary unemployment.

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