Budget deficit in a growing monetary economy: ver. 2

Tanaka, Yasuhito (2022): Budget deficit in a growing monetary economy: ver. 2. Published in: Applied Mathematical Sciences, , Vol. 16, No. 8 (2022): pp. 359-366.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: budget deficit; economic growth; overlapping generations model
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General > E00 - General; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity

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Tanaka, Y., Monetary economy and budget deficit in endogenous growth model, mimeo, (2022). Received: July 23, 2022; Published: August 17,