Question

Why might Congress actually prefer the higher rate of inflation that might result from deficit spending to higher taxes and/or a cut in government spending?

Answer 1

Politicians prefer inflation resulting from deficit spending because it can stimulate the economy and increase aggregate demand.

Step-by-step explanation:

Politicians often prefer a higher rate of inflation that may result from deficit spending rather than higher taxes or a cut in government spending. This is because deficit spending can stimulate the economy and increase aggregate demand. When the economy is producing substantially less than its potential GDP, an increase in the price level due to inflation is not much of a danger. In this situation, the higher interest rates from government borrowing can be largely offset by lower interest rates from expansionary monetary policy, leading to little crowding out of private investment.