Question

what are the advantages and disadvantages of governmen borrowing ( public debt)

Answer 1

Government borrowing refers to the money which government borrows from within the country or abroad.

Advantages of government borrowing -

1) If an economy is going through a recessionary phase, the government's revenue that consists of taxes will automatically fall which will cause a budget deficit, to meet this deficit government borrowing can help in rescuing the economy from recession.

2) In the event of crisis, government borrowings can help in uplifting the economy by using these borrowings and investing them in infrastructure, health, education etc.

3) This may also create a relationship between the public and the government.

Disadvantages of government borrowing-

1) Too much debt in the economy can lead to inflation which can depreciate the value of the currency.

2) This may lead to increase in the future rates of taxes as the government will be needing money to pay the interest.

3) If the government borrowing increases, it may push interest rate higher as there might be a possibility that the government won't be able to repay the borrowed money back so they will be charged a higher interest rate.