Examining the Impact of Modern Money Theory on Non-Traditional Means of Increasing Aggregate Demand

By: Storm Boris '17

Advising Faculty: Edward McKenna

The recent period of ultra-low interest rates and chronically inadequate aggregate demand has led to a series of prominent new proposals of nontraditional means of increasing aggregate demand. That same stagnation has allowed for the increasing influence within the field of Modern Money Theory, a theoretical framework derived from historical observations regarding the role of money. I will explore the impact of Modern Money Theory (MMT) on two of the most prominent proposals for increasing aggregate demand, helicopter money and negative interest rates. I will explain why MMT would suggest, not only are these policies either limited in their effectiveness, or redundant; it is a mistake to refer to both as monetary policy. I present MMT’s solution to inadequate aggregate demand, a Job Guarantee program, and explain the inadequacy of strictly monetary solutions in countering low aggregate demand.

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Related Fields: Economics