Question
Consider the following statements about public debt:
1. Public debt is the total borrowing by the government from domestic and foreign sources. 2. Excessive public debt can lead to a debt trap. 3. Public debt always has a negative impact on the economy. Which of the above statements are correct?Solution
Public debt includes domestic and foreign borrowings (statement 1). Excessive debt can lead to a debt trap (statement 2). However, public debt can finance development and need not always have a negative impact (statement 3 is incorrect).
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