Government debt can be a smart choice if the positive impact on the economy of spending financed by debt is greater than the interest cost.

Question

Quizplus · Accepted Answer

While government debt does come with interest costs, it can be a smart choice if the spending financed by the debt leads to a greater positive impact on the economy. This is because the increased economic growth can lead to increased tax revenues, which can help offset the interest costs. Additionally, some argue that in times of low interest rates, government borrowing can actually help stimulate the economy by increasing demand. However, it is important for governments to manage their debt responsibly and not take on too much debt that they cannot afford to repay.

Government Debt Can Be a Smart Choice If the Positive