The Chimera of Macroeconomics

    A quick question: How many kinds of markets are there in standard vocabulary? A snap answer: There are at least five; that is, the mart in practice, the market in economics, markets in finance and two more in macroeconomics.   8) The “Money Market.” Very clear to the rest of us by now: We keep “money” for the sole purpose of using it as medium in the market while in the meantime saving financial transaction costs in transforming an asset to “the useless when preferred” money (adapted from Irving Fisher, Paul Samuelson and William Nordhaus). On the flipside, the only way to getting rid of the over-flowing money due to “fiscal policy” or else is spending for various things including “final goods and services” of GDP              Don’t even think about eating, wearing or using as shelter the annoying money for the purpose of acquiring utilities: it’s not only deleterious but unlawful. On the waysid...

  To begin, we quote from The Conscientious Liberal: So, the first thing you need to know is that there are multiple correct ways of explaining IS-LM. That’s because it’s a model of several interacting markets, and you can enter from multiple directions, any one of which is a valid starting point. My favorite of these approaches is to think of IS-LM as a way to reconcile two seemingly incompatible views about what determines interest rates. One view says that the interest rate is determined by the supply of and demand for savings – the “loanable funds” approach. The other says that the interest rate is determined by the tradeoff between bonds, which pay interest, and money, which doesn’t, but which you can use for transactions and therefore has special value due to its liquidity – the “liquidity preference” approach. (Yes, some money-like things pay interest, but normally not as much as less liquid assets.) How can both views be true? Because we are at minimum talking about *...