Part 1 There are many ways we can express the level of federal government debt in...

Part 1
There are many ways we can express the level of federal government debt in the U.S. They are 1) total amount of debt in current dollars, 2) level of debt relative to real GDP, 3) cost of debt (view lesson 9.1).

Compare and contrast the 3 ways to measure the debt then make a case for which the one you think most accurately represents the true cost of this debt to society. Include evidence and reasoning.

Solutions

Expert Solution

1. Total amount of debt in current dollars. This is the total amount of debt borrowed by US federal government. It represents how much we are putting our future generation in debt burden. However this metric is an absolute number which do not reflects on the how much debt has been taken relative to the nation's capacity.

2. Levels of debt to current GDP. Debt to GDP ratio is a relative measure of debt levels. This ratio tells an important thing that whether the debt increases are leading to increase in GDP or not. In the case where debt to gdp ratio rise consistently shows the poor utilization of debt in boosting GDP and reflects that government finances are managed poorly.

3. Cost of debt. This metric takes into account of the amount of interest payment which are required to be made in a year. This metric is important to measure the cushion a nation is having in meeting this fixed charge.

Opinion- In my opinion debt to gdp ratio measures true picture of debt cost to society as a whole. This measures relative burden of debt posed to society.

Evidenced in - US experienced hugh levels of debt to gdp ratio in the time of World war -2 where this ratio has crossed 120% of GDP of US. This period was evidenced by high inflation, low growth and high unemployment.

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Rahul Sunny answered 6 months ago

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