What is the opportunity cost of government spending on servicing the interest on the debt.

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Expert Solution

THe funds that government spend on servicing the interest on the debt may be use in other important thing . like government can increase its spedning in the economy which enables to increase the aggregate demand in the economy and thus the real GDP will also increase and can also reduce the tax rate, which increase the disposable income and thus increase the aggregate demand and in long run , real gdp will increase and unemployment will fall.

therefore, we can say that, the opportunity cost of government spending on servicing the interest on the debt may be the lost of the real GDP or loss of economic growth.

Rahul Sunny answered 1 year ago

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