How does Neo-Keynesian Economics view the role of government debt?

Neo-Keynesian economics views government debt as a tool that can be used to stimulate the economy during periods of economic downturn. According to this perspective, government spending can help boost aggregate demand and stimulate economic growth. In times of recession or high unemployment, Neo-Keynesians argue that the government should increase its spending and run budget deficits to stimulate economic activity.

Neo-Keynesians believe that government debt can be managed effectively through fiscal policy, which involves adjusting government spending and taxation to influence the overall economy. They argue that during economic downturns, the government should increase spending on infrastructure projects, social programs, and other investments to create jobs and stimulate demand. This increased government spending is expected to lead to higher economic growth, increased employment, and ultimately, higher tax revenues that can be used to pay down the debt in the future.

However, Neo-Keynesians also recognize the importance of maintaining fiscal discipline and ensuring that government debt remains sustainable in the long run. They emphasize the need for responsible fiscal policies that balance the short-term goals of stimulating the economy with the long-term goal of maintaining fiscal stability. This may involve implementing measures such as raising taxes or reducing spending during periods of economic expansion to reduce the debt accumulated during downturns.

Overall, Neo-Keynesian economics views government debt as a tool that can be used strategically to manage the economy and promote economic growth. It emphasizes the importance of fiscal policy in managing government debt and advocates for a balanced approach that considers both short-term economic goals and long-term fiscal sustainability.