Question

There are two primary positions about government debt: 1) there are negative effects of federal government debt 2) there are positive effects of federal government debt. Give 3 reasons for both sides of the argument.

Answer 1

1 - Negative effects of federal government debt

A - Because of higher interest payments , there may be higher tax rates and spending cuts.

B - There may be fiscal crisis in the economy due to more outside liabilities.

C - The uncertainities increase and problem solving ability of economy decreases.

2 - Positive effects of federal government debt

A - It provides the incentive for the extra economic growth to the economy by increase in consumption and investment

B - It helps to boost the production in economy through various projects and thus increases the level of employment

C - Improves the living standard of the public through increase in their income levels.