Open Access Letter

Money holding and budget deficit in a growing economy with consumers living forever

by Yasuhito Tanaka a,* orcid
a
Faculty of Economics, Doshisha University, Kyoto, Japan
*
Author to whom correspondence should be addressed.
FEL  2023 2(1):9; https://doi.org/10.58567/fel02010004
Received: 22 May 2023 / Accepted: 26 June 2023 / Published Online: 14 September 2023
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Abstract

I examine the problem of budget deficit in a growing economy in which consumers hold money as a part of their savings in the case where consumers live forever. For simplicity and tractability I use a discrete time dynamic model and Lagrange multiplier method. In the appendix I briefly explain the solution using a discrete time version of the Hamiltonian method. I will show the following results. 1) Budget deficit is necessary for full employment under constant prices. 2) Inflation is induced if the actual budget deficit is greater than the value at which full employment is achieved under constant prices. 3) If the actual budget deficit is smaller than the value which is necessary and sufficient for full employment under constant prices, a recession occurs. Therefore, balanced budget cannot achieve full employment under constant prices. I do not assume that budget deficit must later be made up by budget surplus.

Keywords: Budget deficit; Growing economy; Infinitely living consumers;
Copyright: © 2023 by Tanaka. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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ACS Style
Tanaka, Y. Money holding and budget deficit in a growing economy with consumers living forever. Financial Economics Letters, 2023, 2, 9. https://doi.org/10.58567/fel02010004
AMA Style
Tanaka Y. Money holding and budget deficit in a growing economy with consumers living forever. Financial Economics Letters; 2023, 2(1):9. https://doi.org/10.58567/fel02010004
Chicago/Turabian Style
Tanaka, Yasuhito 2023. "Money holding and budget deficit in a growing economy with consumers living forever" Financial Economics Letters 2, no.1:9. https://doi.org/10.58567/fel02010004
APA style
Tanaka, Y. (2023). Money holding and budget deficit in a growing economy with consumers living forever. Financial Economics Letters, 2(1), 9. https://doi.org/10.58567/fel02010004

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