Can deficits can have a positive effect on the economy?

Question

Quizplus · Accepted Answer

Deficits can have a positive effect on the economy in the short-run if the economy is operating below its full capacity. This is because deficits can stimulate spending and aggregate demand, leading to an increase in output and employment levels. However, in the long-run, deficits can have negative consequences such as inflation, interest rate hikes, and crowding out private investment. Therefore, sustained deficits can harm the economy.

Can Deficits Can Have a Positive Effect on the Economy