In this study on the Japanese economy the author focuses on three problems related to economic
policy and presents their answers. The author analyzes (i) what mechanisms exist for fiscal
policy and the price level (ii) whether the MMT proposition that public deficits increase
people's wealth and savings fits into the standard macro model and (iii) whether Blanchard's
assertion that fiscal deficits are net wealth in the US economy can be applied to Japanese
economy as well. The propositions of Sims' FTPL Kelton's MMT Japan's Ricardian type argument
and the non-Ricardian type of government by Blanchard have been understood as independent
economic perceptions but they will be theoretically shown as a coherent story. Namely this
study presents a macroeconomic framework that includes the financial sector and derives Sims'
proposition that fiscal policy can be the sole determinant of the price level. It also shows
that MMT's claim that budget deficits increase our wealth and collective savings can inevitably
hold within this framework. Furthermore it presents a model that consistently explains that
public debt leads to financial collapse but contributes to economic welfare.
