Economics [3 marks Question-Answer]

Difference between Funded Debt and Unfunded Debt :
(i) Funded debts are long term debts whose payments are 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 their fund on maturity.
(ii) Unfunded debts are for a short period of less than a year. The government does not create any separate fund to repay the debt. Treasury bills are examples of unfunded debts
Purpose of Public Debt
(i) The government may borrow to cover budgetary deficit.
(ii) The government may have to mobilise additional resources by means of public debt in times of crisis like war, natural calamities etc.
(iii) The government may borrow to spend it to raise the level of aggregate demand during the period of depression.

Public debt means loans raised by the government within or outside the country.
Four types of Public Debt :
(1) Productive Debts : Productive debts are those debts which are used by the government for those projects which yield income e.g. loans used for the construction of power projects.
(2) Unproductive Debts : Public debts taken for unproductive purpose, for example loans taken by the government to finance budget deficit or war are unproductive debts.
(3) Redeemable Debts : Debts which are repayable by the government after a fixed period of time are called redeemable debts. Interest on such loan is paid regularly.
(4) Irredeemable Debts : Irredeemable debts refer to those debts whose principal amount is not refunded by the government. Only interest is paid regularly on such loans.

Difference between :

Public Debt	Private Debt
(i) The government can take loan within and outside the country.	(i) A private borrower generally can borrow only within the country.
(ii) The government generally borrows to spend for the welfare of the society.	(ii) The aim of private debt is profit making.
(iii) The government may force the people or institutions in the country to lend money to it.	(iii) No private individual can force another individual to lend him money.