Question

Summarize what you learned from the IMF article about public investment. How would you expect an increase in spending on private investment to impact the debt/GDP ratio for the U.S.?

Answer 1

A recent report by IMF on Public Investment for Recovery is released. IMF in its report highlighted the need to emphasis more into public investment. It is highlighted that public investment is a need in the prevailing situation of Corona Virus. Nations must bring out public investmebmnt in the field of infrastructre , education, online delivery mechanism, health sector. As investment and job are related. This will help to lessen the impact COVID -19 has created in the job market, thus reducing unemployment. However it may take time, so maintainance of infrastructure must be looked upon. Public investment will act as cacatalyst in this situation. It is mentioned in the report that owing to the lower interest rates prevailing in the ecoomy, it is good to opt for investment at this point as borrowing cost will be lower now. However private invest seems to go low because of the impact coronavirus has created. Hence government of all developed and emerging nations must invest and also help poor nation get loan so as to fight this situation.

If private investment surges in the economy, hence the private players are investing, lessening the burden of government to intervene to handle the situation. It is lessen the burden of government to raise debt to boost public investment. Hence when government lowes its public investment though raising debt, thus debt to gdp ratio decrease. A lower debt to gdp indicares that economy is working well and is able to repay its debt without further raising debt from the market.