Modern Monetary Theory (MMT)

Excercise:

What does Lawrence ("Larry") Summers mean by a monetary black hole? Begin by commenting on Joseph Stiglitz view of a digital or crypto currency at the end of the above video.

We assume away the Laffer curve. We also assume that a NOK or USD 100 note is a security issued by the Norwegian Central Bank or the FED. The value of this note is reduced by the inflation rate (seigniorage) in the case of Norway. How is the value of this note reduced in the case of the USA?

Comment on the following statement. Norway can have an expansive economic policy and decrease taxes as long as our oil fund is not emptied. The other option is to borrow money to finance tax cuts (we assumed away the Laffer Curve effect). The USA is in a better situation to exercise an expansive fiscal policy by decreasing taxes since the USD is the worlds reserve currency. Most of the worlds savings is in USD. If the global quantity of USD is 100 trillion, a devaluation of the USD by 10 % reduces the US debt burden by USD 10 trillion.

Is this a sustainable policy? What does MMT mean? Comment on the following statement. It is a more sustainable economic policy to print money, e.g. through quantitative easing as long as it does not lead to inflation. Also comment on the concept of a zero sum game and the reason why Central Banks print money (QE) is to produce inflation to avoid a deflationary depression.

Search for the term "Haavelmo Theorem" explain the meaning and answer the following questions:

• What does a balanced budget change mean?
• Is a balanced budget increase expansive or contractive? Explain.
• Why is a large budget more expansive than a small?
• Why is it easier for the USA to grow out of a budget deficit than other countries?
• You have USD 3. One is used on government spending, one on tax decrease for the rich and one on tax decrease for poor people. Which USD is most expansive and which is least expansive. Explain why.