The government is justified in running a deficit and financing it by issuing U.S. Treasury bonds to the private sector when:

Question

Quizplus · Accepted Answer

During the contractionary phase of the business cycle, the government may need to increase spending to stimulate the economy and reduce unemployment. However, if the government were to attempt to finance this spending solely through taxation, it could exacerbate the contraction by reducing private sector spending. Therefore, running a deficit and financing it through the issuance of Treasury bonds can help to reduce the contractionary effects of reduced private spending without restricting government spending. Additionally, during times of economic contraction, interest rates are typically lower, making it more affordable for the government to finance its debt through bonds.

The Government Is Justified in Running a Deficit and Financing