Government Budget Constraint Denied

• Federal government is currency issuer, not currency user

  • Does not need to amass revenue from taxation before it can spend

    • Unlike households, firms, state/local governments

  • So fiscal policy does not have to focus on balancing the budget

• Insufficient private sector Effective Demand to bring economy to full employment

  • Government sector needs to be in deficit to balance out domestic private sector surplus

  • So fiscal policy should not focus on balancing the budget (most of the time)