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Needs, Sources & repayment of Public debt, Public finance Video Lecture | Public Finance - B Com

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FAQs on Needs, Sources & repayment of Public debt, Public finance Video Lecture - Public Finance - B Com

1. What is public debt and why is it important in public finance?
Ans. Public debt refers to the total amount of money that a government owes to its creditors, which can include individuals, institutions, and other countries. It is an important aspect of public finance as it represents the accumulated borrowing by the government to finance its expenditure when its revenue falls short. Public debt allows governments to fund public projects, stimulate economic growth, and manage fiscal deficits.
2. What are the sources of public debt?
Ans. The sources of public debt can include both domestic and external borrowing. Domestic sources of public debt include issuing government bonds, treasury bills, and borrowing from domestic financial institutions and individuals. External sources of public debt include borrowing from foreign governments, international financial institutions, and issuing international bonds.
3. How is public debt repaid?
Ans. Public debt is typically repaid through various methods. Governments can use their revenue from taxes and other sources to make regular interest payments and gradually pay off the principal amount. They can also refinance the debt by issuing new bonds to repay the existing ones. In some cases, governments may negotiate debt restructuring or seek assistance from international financial institutions to manage their debt repayment.
4. Why do governments need to borrow money instead of relying solely on their revenue?
Ans. Governments often need to borrow money to finance public projects and services that cannot be solely funded by their revenue. Borrowing allows governments to bridge the gap between their income and expenditure, especially during times of economic downturns or when they need to make large-scale investments. Borrowing also helps governments manage fiscal deficits and stimulate economic growth by injecting funds into the economy.
5. What are the potential consequences of high levels of public debt?
Ans. High levels of public debt can have several consequences. It can lead to increased interest payments, which can strain government budgets and limit funds available for public services and investments. High debt levels can also increase the risk of default, making it more difficult for governments to borrow in the future. Additionally, it can lead to inflation and economic instability if not managed effectively. Governments often implement strategies like fiscal consolidation and debt restructuring to address high levels of public debt.
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