Book: Introductory Macroeconomics
Chapter: 5. The Government: Budget And The Economy
Subject: Social Science - Class 12th
Q. No. 12 of Exercises
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Does public debt impose a burden? Explain.
Public debt or government debt is the amount that the Central Government owes. This may be in form of borrowings from bank, public financial institutions, or from other internal and external sources.
The public debt definitely imposes a burden on the economy which is being discussed below –
a) To repay the debt, the government imposes higher tax or get the money printed, which adversely affects the productivity and investment.
b) The burden of debt is transferred to future generation which negatively affects the welfare of younger generation.
c) The government increases the rate of interest on bonds and securities to attract more investment due to which a major part of saving of citizens goes in the hands of government, which lower the private investment.
d) The wealth of the country is drained out in repayment of loan taken from foreign countries and institutions.