The quantity theory v. the income expenditures theory using Robert Eisner's adjusted federal budget deficit

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Virginia Tech

This thesis examines the work of Robert Eisner of Northwestern University concerning the appropriate measure of the federal government budget deficit. Eisner proposes specific adjustments to be incorporated into the calculation of the federal budget deficit in order to account for the effects of inflation. These adjustments effect the federal budget deficit via the effect of inflation on the level of federal debt outstanding and the interaction between this debt and the deficit.

The focus of this study is a comparison of the Quantity theory and the Income-Expenditure theory of national income determination (in the tradition of Friedman and Meiselman, 1963) using Eisner’s adjusted measure of the deficit for the period 1955 - 1984. This comparison is made between adjusted and unadjusted deficits as measured by the National Income and Product Accounts and as measured by the Cyclically Adjusted (or High Employment) budget.