Who pays the interest on government debt for the money it borrows today?

Question

Quizplus · Accepted Answer

When the government borrows money to finance its activities, it issues Treasury bonds, notes, and bills that investors can buy. In return, the government pays interest on the borrowed funds. This interest expense is funded by taxpayers, either directly through taxation or indirectly through inflation. Future generations of taxpayers will also bear the burden of paying off the debt principal when it comes due. Therefore, choice C is the best answer. The Federal Reserve creates money and can buy Treasury securities as a way of influencing interest rates, but it does not pay the interest directly. The Congressional Budget Office is a nonpartisan agency that provides budgetary and economic analyses to Congress but does not pay interest on the government’s debt. Finally, choice D is incorrect because the government does pay interest on its debt.

Who Pays the Interest on Government Debt for the Money