Question: Consider the following statement: A deficit during a war can be a good thing. First, the deficit is temporary, so after the war is over,

Consider the following statement:

A deficit during a war can be a good thing. First, the deficit is temporary, so after the war is over, the government can go right back to its old level of spending and taxes. Second, given that the evidence supports the Ricardian equivalence proposition, the deficit will stimulate the economy during wartime, helping to keep the unemployment rate low.

Identify the mistakes in this statement. Is anything in this statement correct?

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The statement contains a couple of misconceptions and oversimplifications Lets break down the errors Mistakes in the Statement Temporary Nature of the ... View full answer

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