“Our new fiscal policy of generating ever larger deficits even in a fully employed economy, had long replaced tight monetary policy as the reason for high real interest
rates”
–Benjamin Friedman
“The simple facts make us wary of assuming that deficit spending has any clear-cut relation to interest rates. There have been literally dozens of studies…some have
discovered a relationship, others have not.
–Robert Heilbroner
Your boss is the member of Congress who you examined in your member assignment, and that member is confused on the issue of “Do Deficits Matter?” You have been ordered to write a memo clarifying the subject. Review the major economic theories and empirical analyses mentioned in class and in the readings, consider the institutions and politics of the budgetary process, and provide an answer to the question: “Do Deficits Matter?”
Use the sources I have given you in the additional files.
