CA Foundation · Business Economics · Public Finance
Which of the following is an argument usually given AGAINST financing government expenditure through public borrowing?
A common argument against public borrowing is that it increases the future interest burden and can crowd out private investment by pushing up interest rates. Borrowing does not remove the need to repay principal, nor does it automatically lower prices or avoid using resources.
- AIt may raise future interest burden and crowd out private investmentCorrect
- BIt allows the government to avoid using any resources
- CIt always reduces the price level
- DIt removes the need for repaying principal
Explanation
Heavy government borrowing raises demand for loanable funds, which can push up interest rates and crowd out private investment, and it creates a future interest burden. The other options are incorrect: borrowing does not remove repayment or reduce prices automatically.
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