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

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Convexity; Macroeconomics; Microeconomics; Pareto inefficiency; Price adjustment; Quantity adjustment; The Great Depression; The Great Recession; Unutilized resources (search for similar items in EconPapers)
JEL-codes: D00 D50 E00 E12 E32 (search for similar items in EconPapers)
Date: 2024-06-10
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