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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Throughout U.S. history, what has been the most common cause of substantial increases in government debt?

a. recessions

b. wars

c. financial crises

d. tax cuts

To determine

The most common cause of substantial increase in government debt.

Explanation

Option (b):

Throughout history, the most common reason of increased government debt has been war. This is because during war time, it is reasonable to finance the extra spending by borrowing. Otherwise, the high taxes had to be implemented which would lead to large deadweight losses. Thus, option ‘b’ is correct.

Option (a):

It is reasonable to allow a budget deficit only during a temporarydownturn of economic activity. Thus, option ‘a’ is incorrect...

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