Follow The Money, page-26

In every recession GDP falls and the debt/gdp ratio goes up not only because GDP falls but mainly because government expenses increase,  and it has been like that  since long time ago.

For certain European countries in the periphery deflation does pose some extra problems because in order to gain competiveness they need their labor costs to deflate  in relation to the core countries a task that would become even harder if the core countries experience themselves deflation.

"GDP is an aggregate and complex measure of the economic production of a country, which itself is not relevant when people are making decisions about buying gold. What is relevant is the comparison with other assets and the level of uncertainty about the strength of the economy. Thus, the same pace of the GDP growth may affect the gold market in completely different ways. Everything depends on the GDP trend, expectations and their broader economic context."

In a deflationary environment cash would be king, wouldn' t it?

Millibuster,

As said before, inflation would generate an higher nominal GDP, which is what governments do tax. However sooner or later that initial advantage would decipate through higher costs (public servents, social security recepients, investors, suppliers all asking for more money under expectations of further price increases)

Keynesian in the short run, classical in the long run

While most economists believe that changes in money supply can have some real effects in the short run, neoclassical and neo-Keynesian economists tend to agree that there are no long-run effects from changing the money supply. Therefore, even economists who consider themselves neo-Keynesians usually believe that in the long run, money is neutral. In other words, while neoclassical and neo-Keynesian models are often seen as competing points of view, they can also be seen as two descriptions appropriate for different time horizons. Many mainstream textbooks today treat the neo-Keynesian model as a more appropriate description of the economy in the short run, when prices are 'sticky', and treat the neoclassical model as a more appropriate description of the economy in the long run, when prices have sufficient time to adjust full.