THE BUDGET DEFICIT AND ECONOMIC ACTIVITY (Deficyt budzetu panstwa i aktywnosc gospodarcza)

In economic theory the budget deficit policy is a controversial issue and economists dispute over its potency to stimulate the economy. In the case of deficit which results from increased budgetary expenditure the discussion concentrates on such issues as how lasting are the changes in employment, output and prices caused by deficit spending and to what extent the crowding-out effect would raise interest rates and lead to a reduction of households' expenditure. The influence of the deficit on economic activity is ambigious because much depends on what households do when new treasury bills flow into their portfolios. Economic crises make this influence quite uncertain as households' expectations tend to become unstable and their decisions unpredictable . In such a situation the success of the budget deficit policy depends on the ability of policy makers to moderate the behaviour of households.