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Traditionalists argue that a reduction in the budget deficit will significantly help the economy in

Traditionalists argue that a reduction in the budget deficit will significantly help the economy in

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Traditionalists argue that a reduction in the budget deficit will significantly help the  economy in the long run. This theory is based on the following logic. When the  government runs a budget deficit, it is spending more than it is taking in. In this way,  national savings decreases. When national savings decreases, investment--the primary  store of national savings--also decreases. Lower investment leads to lower long-term  economic growth. Similarly, lower investment is accompanied by higher domestic  interest rates, which decreases net exports. Based on this logic, a budget deficit is a  drain on the long-term economy.  But the Ricardian view of the budget deficit takes a much less negative position on this  issue. Supporters of this view believe that a budget deficit represents trading taxes in  the future for taxes today. That is, if the government spends more than it taxes today, 
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