What Is 'Modern Monetary Theory (MMT)'?

Modern Monetary Theory is a macroeconomic framework that says monetarily sovereign governments should sustain higher deficits and print as much money as needed because they do not need to worry about insolvency and inflation is a distant possibility. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Term of the Day | Words to Know Modern Monetary Theory (MMT) Modern Monetary Theory (MMT) is a heterodox macroeconomic theory that, for countries with complete control over their own fiat currency, government spending cannot be thought of like a household budget. Instead of thinking of taxes as income and government spending as expenses in a checkbook, MMT proponents say that fiscal policy is merely a representation of how much money the government is putting into the economy or taking out. In this way, MMT sees fiscal policy in a similar way to how we now think of monetary policy. This means that any government spending can be paid for by the creation of money, with the purpose of taxes being to limit inflation, by controlling the money supply. This means that spending shouldn't be determined by deficit levels, but by whether or not spending is keeping the economy at full employment and at a reasonable level of inflation. This would turn government fiscal policy into the tool that would fulfill the Federal Reserve's dual mandate, in place of the Fed's role in fulfilling it. Read More » Related to "Modern Monetary Theory (MMT)" Fiscal Policy vs. Monetary Policy: Pros & Cons When it comes to influencing macroeconomic outcomes, governments have typically relied on one of two courses of action: monetary policy or fiscal policy. Read More » What Is the Quantity Theory of Money? Take a look at the tenets and assumptions of, and challenges to one of monetarism's principal theories, the quantity theory of money. Read More » SPONSORED BY INVESCO The Complete Guide to ETFs ETFs are becoming increasingly popular and soaring to new heights among investors. Invesco's insights can help you determine if these investment vehicles are right for you. Learn More » The National Debt Explained Here's an in-depth look at why the U.S. Government's debt continues to balloon and what it means for you. Read More » Sign Up for 'The Express' Want more Investopedia market news? Get market insights and financial headlines before the opening bell. Make your mornings more enjoyable, for free. Check it Out » Related Definitions Fiscal Policy Fiscal policy uses government spending and tax policies to influence macroeconomic conditions, including aggregate demand, employment, and inflation. Read More » Heterodox Economics Heterodox economics is the analysis and study of economic principles considered outside of mainstream or orthodox schools of economic thought. Read More » Inflation Inflation is a general increase in the prices of goods and services in an economy over some period of time. Read More » Fiat Money Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver. Read More » CONNECT WITH INVESTOPEDIA Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here. 114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC, All Rights Reserved | Privacy Policy