7. Currently the U.S. national debt is over $17 Trillion. Many people feel the h

Question

7. Currently the U.S. national debt is over $17 Trillion. Many people feel the high level of the national debt is a very bad thing and it should be paid off. a. List and explain 3 advantages and 3 disadvantages of eliminating the national debt? i. Think about what the country could do if we did not have the national debt. ii. What would we be saving if we had no debt? iii. Think about the disadvantages of paying the thing off. Where would the money come from? How would we get it? What would it cost just to get the money? What would we lose if we paid it off?

Explanation / Answer

National debt is the debt of an economy. This debt is taken from people of the economy. It is known as internal debt. alternatively, it can be taken from fireign country. Normally it is believed that national debt is a bad thing and should be paid off. But it is not always true. Consider following advantages and disadvantages.

Advantages:

1. Borrowed money helps the economy to grow if it is borrowed for productive purpose. Use of borrowed fund as additional investment will increase future productive capacity. So production/.income will increaese. Percapita income will grow. Standard of living of the people will be better off.

2. In developing for narrowing the gap with other country, it has to invest at a very fast rate. It is not possible due to low income of the people of the economy. Low income causes low savings rate. So adequate fund is mot available for required ivestment. Borrowing is helpful in such a situation.

3. High borrowings reduces value of domestic currency. Thus foreign country can buy their product at low purchase price. It will increase demand of the domestic product in foreign country. Thus export will rise. Just reverse is found i Import. As it is costly, import will fall. Ultimately balance of trade adverse balance will come down. Thus borrowing can help in improving balance of trade of the economy.

Disadvantages:

1. National debt is harmful if it is made for non productive purposes. If it is for satisfying consumption requirement, then investment will not rise. So production capacity in future will not grow. Economy in consequence will suffer a set back.

2. Interest is paid on borrowed money. It is a non productive expenses. Execessive debt increases unproductive expenses. So less amount is available for economic development.

3. It is very severe if debts are taken from foreign vcountry. In domestic borrowings whatever interest is paid will go to people of the ecoomy as their income for lending money. So interest amount will remain within the economy. But in foreig debt the amount will pass on to other country. Thus countrys resources will go outside the ecoomy. People of the country will suffer in consequence.

--------------------------------------------------------------------------------------------------------------------------

If the country has no national debt, the entire saved money is available for effective investmet. Hence it will be easy for the economy to achieve higher growth rate. Also country should have adequate surplus fund to invest in foreign country. In consequence future earnings will rise. People of the economy will better off. Their standard of living will grow. Thus savings of the economy will rise.

------------------------------------------------------------------------------------------------------------------------------------------------

If you pay off the high level of national debt, the very little income will be available for development of the economy. It is not possible to stop all developmental work for the time being. So there will be acute shortage of money to repay the loan. Country can overcome this problem, by different ways as stated below:

1. It can sold its valuables like Gold, Silver etc. So national wealth will drain out of the economy. Future of the economy i consequence will be bleak.

2. Government can impose excessive tax on people to collect extra fund needed to repay debt. It will reduce net income of the peple, They will consume less now. Their standard will fall. Welfare of the ecoomy will decrease.

3. Government can print notes and circulate in the economy. It will cause inflation in the economy. Real income will fall. Country has to suffer.

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.