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M/P Microeconomics is the study of money and the economy as a whole. The study of a micro-economy, as it is sometimes called, is the study of a local economy, as opposed to a national or even international economy. It is important to remember that micro-economics is simply the study of how money flows through an economy. What is macro-economics is the study of how money flows across countries or regions, and how those flows impact that economy. In other words, what M/P macro focuses on is how money flows in and out of an economy.

mp macroeconomics|mp macroeconomics

M/P Microeconomics is the study of money and the economy as a whole. The study of a micro-economy, as it is sometimes called, is the study of a local economy, as opposed to a national or even international economy. It is important to remember that micro-economics is simply the study of how money flows through an economy. What is macro-economics is the study of how money flows across countries or regions, and how those flows impact that economy. In other words, what M/P macro focuses on is how money flows in and out of an economy.

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A key feature of M/P macro is the study of business cycles. Business cycles are characterized by excess capacity, known as a business cycle deficit, or an excess of production relative to demand. An economy can become more efficient and grow at a steady rate, if excess capacity is taken out of the equation, and if those capacity reductions are matched with demand reductions.

This brings us to M/P central banking. Central banks, which are bank managers, use various tools, including interest rates and various other tools, to try to keep the economy operating at a healthy rate. Usually, central banks are called interest rates, and there is much overlap between M/P central banking and M/P macroeconomics. For instance, there are many ways central banks can intervene in the economy, such as with the goal of inflation, which is essentially a desire to increase the supply of goods and services in the economy; or with the goal of deflation, which is basically a desire to decrease the supply of goods and services.

Money flow and M/P macro views are not mutually exclusive. As noted above, central banks can intervene in the economy to offset the effects of excess capacity and interest rates by changing the supply of money. There are two schools of thought about how this occurs. Some believe that changes in the supply of money causes changes in the distribution of wealth and in the distribution of productivity.

Other macro thinkers believe that changes in the supply of money are offset . . . . . . by increases in demand. This latter view is not inconsistent with M/P macro theory, but it is not clearly taught in modern economics textbooks. The modern conception of demand inflation, which is the study of how changes in demand affect the prices of goods and services and the quantities of money, is not inconsistent with M/P macro theory, but modern mainstream economics does not teach it. It was, in fact, one of the attractions of modern monetary theory for monetarists. Monetarists who favor a generalized supply function also do not reject the concept of government intervention to correct market price changes.

M/P macro remains a puzzle to modern economists. Is it really an accurate model of the real economy? In the end, only an educated guess about the answers is likely to be any guide. As long as interest rates are kept low, business investment will go ahead, and unemployment will drop.

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