Budget deficit in a growing monetary economy: ver. 2

Tanaka, Yasuhito

Budget deficit in a growing monetary economy: ver. 2

MPRA Paper from University Library of Munich, Germany

Abstract: Using a traditional neoclassical two-period overlapping generations model that takes into account consumers’ money holdings, we examine the existence of budget deficit in an economy which grows at the constant positive rate. The following results will be shown. 1) Budget deficit is necessary to achieve full employment under constant prices of goods. 2) If the actual budget deficit is larger than the value which is necessary and sufficient for full employment under constant prices, an inflation is triggered. 3) If the actual budget deficit is smaller than the value which is necessary and sufficient for full employment under constant prices, a recession occurs. Therefore, full employment at constant prices cannot be achieved with a balanced budget. If money as well as goods are produced by capital and labor, budget deficit is not necessary for full employment under constant prices.

Keywords: budget deficit; economic growth; overlapping generations model (search for similar items in EconPapers)
JEL-codes: E00 E12 E24 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (3)

Published in Applied Mathematical Sciences, 8.16(2022): pp. 359-366

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