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Answers to Questions 1 and 2: Financial System from Viewpoint of Payment

In: Deflation and Fiscal Deficits

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  • Yoshikiyo Sakai

    (Kanagawa University)

Abstract

We give answers to questions 1 and 2, which are based on the discussions of the fiscal theory of the price level (FTPL) and the modern monetary theory (MMT). Specifically, from the perspective of economics of payments by Freeman (1996), we present a model consistent with the FTPL assertion that fiscal and monetary policy are intertwined. This mechanism explains the process by which the central bank underwrites government bonds, which are the source of fiscal spending, thereby increasing the money stock and consequently affecting prices. In addition, the MMT proposition “budget deficits are national wealth” is established between the public sector and the private sector from the assumptions, (i) the government activity in which revenue is financed after spending decision is made and (ii) government bonds and the monetary base are treated identically.

Suggested Citation

  • Yoshikiyo Sakai, 2024. "Answers to Questions 1 and 2: Financial System from Viewpoint of Payment," SpringerBriefs in Economics, in: Deflation and Fiscal Deficits, chapter 0, pages 39-49, Springer.
    • Handle: RePEc:spr:spbchp:978-981-97-0415-6_5
    DOI: 10.1007/978-981-97-0415-6_5
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