Question

Question

Government debt is bad. State whether you agree or disagree with this statement, and justify your answer. In your justification, provide empirical evidence (cite your source) to back up your argument. Feel free to include graphs/figures/tables to support your argument if you prefer.

Answer 1

Govt debt is how much money a country owes to its lenders outside of itself.In short run govt debt is good as country gets extra funds to invest in their economic activities , for those lenders who are giving money , it is safe for them to invest as they are buying govt bonds in returns of those money.This is safer than FDI, in short run govt debt can improve standard of living , it helps boost the economic growth. But in the long run, when govt tends to take on too much money actually the govt is increasing its liability as they have to pay it back in recent future with interest rate.Debt to GDP ratio is high with increasing debt payment , as in long run the risk associated with govt bond is higher , the lender charge risk premium or higher int rate in long run. Thus the govt must find out a balanced public debt amount that can actually boost up the economy.