Fundamental of Economics

Public debt refers to borrowing by a Government from within the country or from abroad, from private individuals or association of individuals or from banking and non-banking financial institutions. Classification of Public Debt: · Internal and External debt: Internal debt is raised from within the country and external debt is owed to foreigners or foreign governments or institutions. · Productive and Unproductive debt: The productive debt is expected to create assets which will yield income sufficient to pay the principle and interest on the loan. In other words, they are expected to pay their way; they are self-liquidating. On the other hand, loans raise for war or protection against natural disaster do not create any asset; they are dead weight and are regarded as unproductive. · Short-term and Long-term debt: Short-term loans are repayable after short interval of time, e.g. treasury bills payable after three months, ways and means advances from the