Modern Monetary Theory (MMT)

Modern Monetary Theory (MMT)

Description/Paper Instructions

Modern Monetary Theory (MMT)

Modern Monetary Theory (MMT) is a heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires. According to MMT, governments create new money by using fiscal policy and that the primary risk once the economy reaches full employment is inflation, which can be addressed by increasing taxes on everyone to reduce the spending capacity of the private sector.

MMT is a relatively new theory, first developed in the 1990s by economists such as Warren Mosler and Stephanie Kelton. It has gained increasing attention in recent years, as governments around the world have adopted more expansionary fiscal policies in response to the COVID-19 pandemic.

One of the key tenets of MMT is that governments that issue their own fiat money are not constrained by their budget deficits. This is because the government can always create more money to finance its spending. However, MMT also argues that governments should not spend recklessly, as this could lead to inflation.

MMT has a number of implications for economic policy. For example, it suggests that governments should not worry about running budget deficits, as long as they are not causing inflation. It also suggests that governments should use fiscal policy to achieve their economic goals, such as full employment or reducing inequality.

MMT is a controversial theory, and there is no consensus among economists about its validity. However, it has the potential to challenge some of the conventional wisdom about economic policy.

Here is a more detailed explanation of some of the key concepts in MMT:

• Fiat money: Fiat money is a currency that is not backed by any physical asset, such as gold or silver. Instead, its value is based on the government’s promise to accept it as payment for taxes and other debts.
• Currency monopoly: A currency monopoly is a situation where a single entity, such as a government, has the exclusive right to issue currency. This means that the government can create as much money as it wants, without having to worry about running out of resources.
• Fiscal policy: Fiscal policy is the use of government spending and taxation to influence the economy. MMT argues that fiscal policy is the primary tool that governments should use to achieve their economic goals.
• Inflation: Inflation is a general increase in prices and a decrease in the purchasing power of money. MMT argues that inflation is the primary risk associated with government spending. However, it also argues that inflation can be controlled by increasing taxes, which reduces the amount of money in circulation.

MMT is a complex theory, and there is still much debate about its validity. However, it has the potential to challenge some of the conventional wisdom about economic policy. Only time will tell whether MMT will become a mainstream theory or remain a heterodox fringe theory.

Here are some of the pros and cons of MMT:

Pros:

• MMT could help governments to achieve their economic goals, such as full employment and reducing inequality.
• MMT could reduce the risk of financial crises, as governments would be less likely to run out of money.
• MMT could give governments more flexibility in their economic policies.

Cons:

• MMT could lead to inflation, if governments are not careful about how they use fiscal policy.
• MMT could be difficult to implement in practice, as it would require a significant change in the way that governments think about money and fiscal policy.
• MMT could be politically unpopular, as it would challenge some of the conventional wisdom about economic policy.

Overall, MMT is a complex theory with both potential benefits and risks. It is too early to say whether MMT will become a mainstream theory or remain a heterodox fringe theory. However, it is a theory that is worth considering, as it could have a significant impact on economic policy in the future.

Modern Monetary Theory (MMT)

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And/or there is a significant use of highly questionable sources. 15 out 20 points:  Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented.  APA 6th Edition is used with only a few minor errors.  There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points:  Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented.  APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points:  Student failed to submit the final paper. 5 points out of 20:  The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors  10 points out 20:  The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20:  The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points:  The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. 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The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper.
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