Question

Using deficit hawks, deficit doves, and functional finance

1. Which one says unemployment is the root cause of the deficit

2. Blames government deficits are generally immoral

3. deficits cause inflation

4. The national debt is a huge burden on future generations

5. The government should always balance its budget every single year and should try to pay off the national debt

6. Deficits crowd out private investmant

7. Paying off national debt will lead to another great depression

8. The fed and other government agencies own most government debt, so we dont really need to be worried about the national debt

9. Neither the size of the deficit nor that of the national debt are important what matters is their function

10. It is possible to simultaniously achieve the goals of full employment, economic growth, price stability, and enviromental sustainability

Answer 1

1.) Deficit hawks believe in rigid monetary and fiscal policy, so they emphasis that deficit spending to meet lower level of unemployment will add the burden to government because reducing unemployment will lead to rise in inflation.

2.)  Deficit hawks focus on keeping high interest rate to maintain or control inflation levels, they aren't much worried about the economic growth and consider deficit spending as immoral becasue as the economy doesn't possess the required money to promote the economy why it has to add up its debt burden.

3.)  Deficits doesn't cause inflation, it is th deficit spending that causes inflation because as government spends more than what it generates as revenue, it will create a artificial rise in demand for the goods and services which will further increase its price thus resulting in inflation in the economy.

4.) Yes, beacuse as borrowing keeps on adding to the national debt the burden on future generations increases, even though at present we could borrow a lot and enjoy tax cut benefits, in the long-run the principal amount and the interest have to be repaid from the taxes the future generation would be paying. As borrowings is a future commitment the burden of repayment also rests with the future generation if the present hasn't paved the way out of such debts.

5.) Functional finance states that taxation is one of the very important factors that could help repayment of the national debt because taxation cuts consumer spending and government spending which would help government retain some money to make repayment of the debt and improve budget towards a balanced form.

6.)  As government borrows more deficit hawks come into play which stresses upon higher interest rates that subsequently makes cost of borrowing higher for the private sector which further leads to crowding out of private investments from the economy.

7.) This can viewed from the combination of both functional finance and deficit hawks, where functional finance focuses on taxation so as to generate money for repayment of the borrowed money which leaves less disposable income with the people that hampers their purchasing power and deficit hawk's core idealogy of high interest rates slows down economic activity. We could thereby infer that the gap between the demand and supply widens and comes close to nil, which may lead to stagnation of the economy and move the economy towards  great depression as there is less money left in the hands of people and in the government.

8.) Fed and other agencies are independent but are associated to the people's government and thus as mentioned in the question it just acts as an agent for the Fed government, thus Fed government is held responsible for their acts.

9.) The size of the deficit or the national debtd o matter because a country can't keep borrowing which would create more burden for the economy, which wouldn't happen as per the deficit hawks suggestions that doesn't focus on economic growth and let the economy progress as per the market determinants with the requisite control measure. Thus the size of debt matters because a country should progress or grow with the initial borrowed sum so that it could become self-reliant.

10.) Yes it is possible , in order to meet full employment the government has to spend on opportunistic sectors, skilling and educational programs to improve the productivity of the workforce and once the level of unemplyment falls( employment rate rises) it would lead to inflation leading to higher price levels which could be controlled by increasing the direct taxes that reduces the disposable income left with individuals to spend huge volume of money in other words huge volume of moeny in the market, thereby with mild inflation and rising employment rate the economy growth smoothly takes-off. With regard to environmental stability, as the government's imposition of more direct tax that yields more revenue for the government can now be spent on reducing environmental cost.