Economics [2 Mark Question Answer]

When the government borrows by issuing securities, it is called voluntary debt.

Redeemable debt is that loan which is repayable by the government after a fixed period of time. When the debt matures the government pays back the amount to the lender.

(i) Loans raised for war
(ii) Loans reused for payment of interest.

India is heavily in a situation of debt trap. The government debt is approximately 65% of its GDP. This deadly diseases is called debt trap.

Loans taken by the government for developmental work is called productive debt. For example, loans used for construction of irrigation projects.

When the government borrows for non-developmental works (such as war finance) it is called unproductive loan.

Public debt refers to the loans raised by government within or outside the country.

→ Redeemable debt is that loan which is repayable by the government after a fixed period of time. When the debt matures the government pays back the amount to the lender.
→ Irredeemable loan is that loan whose principal amount is not refunded by the government. However, interest is paid regularly.

(i) Public loans raised within the country are called internal debt whereas loans from other countries are referred to as external debt.
(ii) An internal debt may be voluntary or compulsory whereas external debt is generally voluntary.

Debt trap refers to a situation when the government of a country has to raise fresh loans just to pay the interest charges on the earlier loans borrowed. The government is trapped in vicious circle of borrowing. Under it, the government has to go on borrowing after borrowing.
India is heavily in a situation of debt trap. The government debt is approximately 65% of its GDP. This deadly diseases is called debt trap.

Loans taken by the government for developmental work is called productive debt. For example, loans used for construction of irrigation projects.
When the government borrows for non-developmental works (such as war finance) it is called unproductive loan.

(i) International Financial Institutions, like, IMF, World Bank.
(ii) Foreign commercial banks
(iii) Foreign governments

Debt trap refers to a situation when the government of a country has to raise fresh loans just to pay the interest charges on the earlier loans borrowed. The government is trapped in vicious circle of borrowing. Under it, the government has to go on borrowing after borrowing.
India is heavily in a situation of debt trap. The government debt is approximately 65% of its GDP. This deadly diseases is called debt trap.

→ Redeemable debt is that loan which is repayable by the government after a fixed period of time. When the debt matures the government pays back the amount to the lender.
→ Irredeemable loan is that loan whose principal amount is not refunded by the government. However, interest is paid regularly.

When the government borrows by issuing securities, it is called voluntary debt. But when the government takes loans from the people forcibly, it is called compulsory debt. Compulsory debt is taken during an emergency like war and during inflation to reduce the volume of purchasing power.

(i) Public loans raised within the country are called internal debt whereas loans from other countries are referred to as external debt.
(ii) An internal debt may be voluntary or compulsory whereas external debt is generally voluntary.

Loans taken by the government for developmental work is called productive debt. For example, loans used for construction of irrigation projects.
When the government borrows for non-developmental works (such as war finance) it is called unproductive loan.

Two sources of External Debt :
(i) Government borrows from international financial institutions such as World Bank, IMF.
(ii) External debt is also taken from the governments of other countries.

Funded debts are long term debts whose payment is made at least after a year or may not be made at all. In order to repay the debt, a debt fund is created in which some money is deposited every year by the government. The debt is repaid out of this fund on maturity.

Gross Debts : The sum total of all the debts outstanding at any time is called gross debt.
Net Debts : On the other hand, net debt is the balance amount of debt (gross debt) after exclusion of sinking fund and other assets meant for repayment of loans.

When the government borrows by issuing securities, it is called voluntary debt. But when the government takes loans from the people forcibly, it is called compulsory debt. Compulsory debt is taken during an emergency like war and during inflation to reduce the volume of purchasing power.