a. What is public debt?
b. Outline any three reasons why counties borrow.
c. Highlight any three effects of a huge national debt on the economy of a country.
Explanation
(a) Public debt is the total amount owed by a country that is made up of internal and external debts.
(b)(i) To finance emergencies like flood, earthquakes, etc.
(ii) To finance wars.
(iii) To service loans.
(v) To finance huge capital projects.
(v) To finance the balance of payments deficit.
(vi) To support a country's budget
(c) i. A large external debt can make a country susceptible to the whims and caprices of external creditors.
(ii) If a large internal debt is sustained by a high rate of interest, it will reduce private investment that is needed to accelerate growth and development.
(iii) A large domestic debt will influence the distribution of income in a country
iv. Reduced the availability of foreign exchange.
(v) The servicing of external debt will involve an outflow of resources that can otherwise be used in economic development.
(vi) Servicing of debt will limit the government's ability to provide social capital.