Business, 20.03.2020 10:01 asiaemerlle

"Budget deficits should be avoided, even if the economy is below potential, because they reduce saving and lead to lower growth." Does this policy directive follow from the short-run or the long-run framework? Short-run framework. The short-run framework directs one to avoid deficits; in the long-run framework deficits are useful if the economy is significantly below potential. Neither. Deficits are offset by an increase in private saving and do not lead to lower growth in the long-run or the short-run framework. Long-run framework. The long-run framework directs one to avoid deficits; in the short-run framework deficits are useful if the economy is significantly below potential. Both. Deficits reduce saving and lead to lower growth in the long-run and the short-run framework.

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