Advertisements
Advertisements
Question
How Public debt imposes a burden on the economy as a whole?
Options
Adverse effect on productivity and investment
Burden on younger generations
Lowers the private investment
All of the above
MCQ
Solution
All of the above
Explanation:
Public debt is unquestionably a burden on the economy as a whole, as the following points demonstrate.
- Adverse effect on productivity and investment:
To settle the debt, a government may impose taxes or print money. This, however, diminishes people's ability to labour, save, and invest, hampering a country's progress. - Burden on younger generations:
Future generations will bear the brunt of the government's lowered consumption. Larger government borrowing in the present results in higher taxes being imposed in the future to pay off past debts. The government levies taxes on the younger generations, reducing their savings and investments for consumption. As a result, increased public debt has a detrimental impact on the well-being of future generations. - Lowers the private investment:
By hiking interest rates on bonds and securities, the government draws additional investment. As a result, the government receives a large portion of citizens' savings, crowding out private investment. - Leads to the drain of National wealth:
The country's wealth is depleted when it comes to repaying debts from foreign countries and institutions.
shaalaa.com
Is there an error in this question or solution?