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ECONOMIC THEORY.

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ECONOMIC THEORY.

  1. What is money?

Money is a resource that acts as a medium of exchange, a unit of accounting and a store of value. It is the resource that brings an acceptable form of transaction between the demand and supply of commodities.

  1. How does MMT differ from the way other schools of thought mould money?

Modern money theory moulds money to be controlled by any particular country independently. It states that the US is the sole issuer of its currency. The approach means that a commodity currency does not constrain the country as in other schools of thoughts. The state, therefore, within its jurisdiction, wield power to print money to help finance budget deficits that develop during a crisis.

  1. Specifically, how do Walras and Arrow & Debreu model money?

They modelled money as a general equilibrium that exists in a competitive economy. The three economists give proofs of the existence of a balance for an integrated model. This model involves production, exchange and consumption parameters. Walras formulated the state of the economic system at any point of time as the solution of a system of simultaneous equations representing the circulation of goods. Circulation entails the demand for goods by consumers, the supply of the goods by producers and the equilibrium condition that supply equal demand on every market. He did not, however, give any conclusive arguments to show that the equations had a solution. Arrow and Debreu, then through certain assumptions about production and consumer sets with consumers preferences, came up with solutions to prove the equations.

  1. Does money have anything to do with institutions, or does money exist independently from an economy’s institutions?

Money is dependent on the economy’s institutions. Money value has become the prime resource of financial transactions; therefore, its influence on a country’s economy is enormous. Economy institutions collect and study economic data for a state. Thus, the dependency of money to these institutions is essential as it establishes the current financial state of a country.

 

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