Question

Of the numerous solutions to the debt crisis that have been suggested in the literature, which single solution would you recommend and why? What are the potential limitations of your proposed solution?

Answer 1

The debt of government rising persistently. it is likely to rise further. The government needs to reduce the level of the national debt. The following actions government take to address the problem of debt:

• Reducing the expenditure or rationalization of expenditure.
• Increasing economic growth.
• Increasing the tax base.
• Printing the new money.

Reducing government expenditure is the most appealing and practical measure to control the rising debt. The government must reduce its military expenditure and other unproductive expenditures to reduce the debt level. The debt level can be reduced substantially during the boom period.

The rise in the debt is inevitable during the recessionary gap in the economy. The economy tends to under produce during the recessionary gap. Thus government has to follow the the deficit budget to correct the economic recessionary gap. Thus rise in the debt is natural outcome.