The Chemistry of the Macroeconomy

Asset booms and busts have accompanied or caused recent macroeconomic fluctuations. However, asset prices are not a part of GDP nor are they included in inflation calculations. Links between the financial sector and real economy are increasingly important. The theory contributed in this paper centers draws on a natural sciences approach to explain the optimal amount of transactions for unbacked assets. Excessive transactions for such assets diminish productivity. This theory does not involve asset prices, only transactions, offering a distinction from literature on asset bubbles, and leads to concise policy recommendations to improve macroeconomic stability