Economic Effects of a Deficit Keynesian View Modern View Deficits are desirable in recessions because the increase disposable income Depends on the way a deficit is financed: -Public -Social Security -The Federal Reserve Increase in Output and Employment if the economy is at less than full- employment The Public: Expansionary, but by less than the Keynesians thought Social Security: Does not affect the budget due to no market transactions The Federal Reserve: No harmful effect to the deficit if the economy is operating at less than full-employment Modern View Increase in Output and Employment if the economy is at less than full- employment Keynesian View Deficits are desirable in recessions because the increase disposable income Increase in Output and Employment if the economy is at less than full- employment
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