Government debt can affect a country’s economy in several important ways:
Public Investment: When a government has more debt, it can use that money to pay for things like roads and bridges. This can help the economy grow. For example, if the government spends $1 billion on these projects, it could create about 13,000 jobs.
Interest Payments: A lot of debt means the government has to pay a lot of interest. In Sweden, for example, they spent about 3% of their entire economy on interest payments in 2020.
Inflation and Taxes: When debt goes up, it might also mean rising prices or higher taxes. This can make people less willing to spend money. If the debt hits $200 billion, the government might have to raise taxes to pay for interest.
Investment Crowding Out: When the government has high debt, it can make it harder for businesses to invest. This can slow down economic growth because businesses won’t be able to spend as much.
Fiscal Responsibility: Keeping a healthy balance between debt and the economy is important. A debt level of around 60% is usually seen as safe for economic stability.
Government debt can affect a country’s economy in several important ways:
Public Investment: When a government has more debt, it can use that money to pay for things like roads and bridges. This can help the economy grow. For example, if the government spends $1 billion on these projects, it could create about 13,000 jobs.
Interest Payments: A lot of debt means the government has to pay a lot of interest. In Sweden, for example, they spent about 3% of their entire economy on interest payments in 2020.
Inflation and Taxes: When debt goes up, it might also mean rising prices or higher taxes. This can make people less willing to spend money. If the debt hits $200 billion, the government might have to raise taxes to pay for interest.
Investment Crowding Out: When the government has high debt, it can make it harder for businesses to invest. This can slow down economic growth because businesses won’t be able to spend as much.
Fiscal Responsibility: Keeping a healthy balance between debt and the economy is important. A debt level of around 60% is usually seen as safe for economic stability.