Question

Explain how government debt can be an economic benefit as well as an economic problem

Explain how government debt can be an economic benefit as well as an economic problem

Homework Answers

Answer #1

Government Debt and its benefits:

  • Government debt helps to increase aggregate demand and assist in dealing with economic recession like situations.
  • Government debt can be used by the government to meet the rising needs for infrastructure or debt can be used for developing assets and infrastructure.

Economic problem of debt:

  • Economic debt can become problem if debt is not used for productive purposes. it will lead to the rise in debt burden for future generation. Future generation will become responsible for paying off debt.
  • Debt can generate inflation if economy is already at its full potential level.
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