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Can anyone explain why in some textbooks a government deficit causes a shift to the left of the supply curve (Mankiw) and in others a shift to the right of the demand curve (Krugman).

Furthermore,how does each of these models reconcile with a government selling bonds? Selling bonds is borrowing money. This seems logically like an increase in demand (Krugman)- the goverment is demanding more loanable funds. However, it is budget deficit financing therefore somehow it must be shifting the supply curve to the left If you take the Mankiw textbook weltanschauung. How can we reconcile the two?

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  • $\begingroup$ Please be more specific. Government can spend resources on different things and this can be analyzed in different settings. Without specifically stating which example in what Mankiw and Krugman textbook you are talking about there is no way how to answer this. For example, it might be that Mankiw assumes in some example balanced budget and Krugman does not. Taxation can be assumed to create DWL or it can be assumed lump sum which does not create DWL, unless you provide specific references this is unanswerable $\endgroup$ – 1muflon1 Jun 15 at 9:22
  • $\begingroup$ Cheers 1Muflon. I suppose that's what I'm wondering myself. How can 50% of the sources shift the demand curve and in the other 50% the supply curve (numbers made up!) in supposedly the same market? The demand curve shift seems to be the more common youtube.com/watch?v=iaGjqkRIUSk But then there's Mankiw: youtube.com/watch?v=yf6qu0DbViE There's no mention of DWL in any of these models. $\endgroup$ – Food Jun 15 at 9:52
  • $\begingroup$ Different situations can result in shift in demand and different situations in shift in supply, most textbook, as well as the videos you link mentions both shifts in demand an supply, Both of the videos you linked now mention both demand and supply, one of the video even specifically mentions how different government fiscal policy leads to shift in demand or supply, so what exactly is your question? $\endgroup$ – 1muflon1 Jun 15 at 10:03
  • $\begingroup$ How can one textbook say "Budget deficit shifts supply" another source says "Budget deficit shifts demand"? It's not a discussion about one philosophical standpoints. They both proport to be explanations of the "Market for loanable funds" looking at a "budget deficit". - The second video looks at a worked example following "Mankiw" logic (8 mins) that states gvt deficit moves supply (does not impact demand) you go to Kahn he states budget deficit moves demand (no impact on supply). How can these both be right? There must be an assumption behind them that I'm missing. $\endgroup$ – Food Jun 16 at 12:33
  • $\begingroup$ But market for loanable funds can be modeled in different way, this is why you need to include explanation of what are details in those problems or at least pls provide reference to some textbooks and pages instead of saying mankiw textbook or krugman textbook both authors have dozens of them $\endgroup$ – 1muflon1 Jun 16 at 12:36

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