Analysis of Debt to GDP Ratio with Microeconomic Foundations: Theoretical Basis for MMT Arguments
Abstract
This paper examines the relationship among budget deficit, inflation rate and debt to GDP ratio from the perspective of Functional Finance Theory and MMT (Modern Monetary Theory). Using an overlapping generations model under monopolistic competition with bequest motive of consumers, mainly we will show the following results. • Under full employment with constant prices or inflation the debt to GDP ratio does not change from a period to the next period • The interest rate on government bonds should equal the nominal growth rate to achieve full employment with constant prices or inflation under balanced budget excluding interest payments on government bonds. • The inflation rate we need to maintain full employment under balanced budget excluding interest payments on government bonds is determined by the interest rate
Full Text:
PDFDOI: https://doi.org/10.5296/rae.v14i1.19865
Copyright (c) 2022 Yasuhito Tanaka
![Creative Commons License](http://i.creativecommons.org/l/by/4.0/88x31.png)
This work is licensed under a Creative Commons Attribution 4.0 International License.
Research in Applied Economics ISSN 1948-5433
Email: rae@macrothink.org
Copyright © Macrothink Institute
To make sure that you can receive messages from us, please add the 'macrothink.org' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.