The answer is simpler in the case of unemployment and this may be dealt with first. Suppose that the economy is characterized by substantial excess capacity and unemployment. We assume that an increase in total demand will have little or no effect on the level of prices but will serve to increase production and employment. As has been suggested several times the government should create money in such a situation. Government deficits should be financed by an increase in the supply of money. No taxation and no real borrowing should take place. Either of these methods of raising revenue must serve to reduce somewhat current demand for goods and services an effect that can only be undesirable in the underemployed economy.