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Macroeconomics Is Still Useful and Necessary: A Mechanism to Explain the Condition when Strict Convexity is Unsatisfied

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  • Harashima, Taiji

Abstract

Macroeconomics has been often criticized for being useless particularly since the Great Recession. In this paper, I show that macroeconomics is still important, useful, and needed on the basis of the concept of a “Nash equilibrium of a Pareto-inefficient path” (NEPIP). On a NEPIP, the condition of strict convexity is not satisfied and thus the price adjustment process malfunctions, which can generate an event like the Great Depression and Great Recession. Microeconomics cannot explain the generation of such an event. Macroeconomics, as the branch of economics that deals with the NEPIP concept, can explain these kinds of events and is therefore also necessary and useful in the field of economics. In addition, macroeconomics is as important and useful as microeconomics because only macroeconomics can justify fiscal policies.

Suggested Citation

  • Harashima, Taiji, 2024. "Macroeconomics Is Still Useful and Necessary: A Mechanism to Explain the Condition when Strict Convexity is Unsatisfied," MPRA Paper 121168, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:121168
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    References listed on IDEAS

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    More about this item

    Keywords

    Convexity; Macroeconomics; Microeconomics; Pareto inefficiency; Price adjustment; Quantity adjustment; The Great Depression; The Great Recession; Unutilized resources;
    All these keywords.

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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