On October 29 and 30, 1982, the Center for the Study of American Business and the Institute for Banking and Financial Markets at Washington "The Economic Consequences of University cosponsored a conference on Government Deficits. " This was the sixth annual Economic Policy Con­ ference sponsored by the Center, and the first it has cosponsored with the Institute. This book contains the papers and comments delivered at that conference. Recent and prospective large federal deficits have prompted a thorough reconsideration of the political sources and economic consequences of government deficits. The papers in Part I focus on the implications of deficits for monetary growth and inflation, and the papers in Part II consider the effect of deficits on interest rates and capital formation. The papers in Part III deal with the political sources and remedies for the explosive growth in government spending and increased reliance on deficits. The papers in Part I by Alan S. Blinder, Professor of Economics at Princeton University, and Preston J. Miller, Assistant Vice President and Research Advisor at the Federal Reserve Bank of Minneapolis, discuss the relation between monetary growth and deficits and present evidence on the of deficits on inflation and output. A deficit is said to be monetized effects vii viii THE ECONOMIC CONSEQUENCES OF GOVERNMENT DEFICITS when the Federal Reserve purchases bonds to aid the Treasury in financing the deficit.

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I Impact of Deficits on Monetary Growth and Inflation.- 1 Examining the Proposition that Federal Budget Deficits Matter.- Discussion.- 2 On the Monetization of Deficits.- Discussion.- II Impact of Deficits on Interest Rates and Capital Formation.- 3 Asset Substitutability and the Impact of Federal Deficits.- Discussion.- 4 Investment versus Savings Incentives: The Size of the Bang for the Buck and the Potential for Self-Financing Business Tax Cuts.- Discussion.- III The Political Economy of Deficits.- 5 Public Deficits in Normative Economics and Positive Political Theory.- 6 A Constitutional Cure for Deficits.- Discussion.- Discussion.- IV Keynote Address.- 7 Dealing with Deficits and the Rise in Federal Spending.- Contributing Authors.