Based on the covid-19 pandemic, give some reasons in favor of expanding the government debt in...

Based on the covid-19 pandemic, give some reasons in favor of expanding the government debt in this case.

Expert Solution

There is a great possibility that this ongoing Covid-19 crisis would lead to a recession in the Economy. Manu scholars are saying that this pandemic would lead to a recession which would be even bigger that tha global financial crisis. Now, when there is Recession in Economy, Aggregate Demand is low, and consequently employement and output is low. To eliminate the recession and emerging huge Unemployment, there is a case that Governement Spending should be increased. This is because Governement Spending would boost Aggregate Demand in the Economy because of the working of Multiplier effect. Now, this would Increase employement and output. To increase Governement Spending, without increasing taxes, Governement has to borrow which would Increase it's debt. Therefore, to eliminate the adverse effects of this pandemic on the Economy, Governement Spending and consequently Governement debt should increase.

Rahul Sunny answered 6 months ago

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