Circumstances of Questions and Theoretical Background

In this study, we will focus on three problems related to the recent economic policy of Japan and present their answers. We will describe and analyze (i) what mechanism exists for fiscal and monetary policy and the price level, (ii) whether the modern monetary theory (MMT)proposition that public debt increases people’s wealth and savings fits into the standard macro model, and (iii) whether Blanchard’s assertion that budget deficits are net wealth in the US economy can be applied to Japan economy as well. The propositions of Sims’ the fiscal theory of the price level (FTPL), Kelton’s MMT, Japan’s Ricardian type argument the so-called Crocodile Mouth theory, and Blanchard’s non-Ricardian type of government have been understood as independent economic perceptions, but they will be shown as a theoretically coherent story.