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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 23, Problem 5CQQ
Textbook Problem
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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 of Solution

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...

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