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How Public debt imposes a burden on the economy as a whole? -

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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.

  1. 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.
  2. 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.
  3. 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.
  4. Leads to the drain of National wealth:
    The country's wealth is depleted when it comes to repaying debts from foreign countries and institutions.
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