Which of the following statements is true about the public debt and future generations?
A) Future generations will always be worse off because they will have to pay off the public debt.
B) Increased consumption today will lead to increases in the capital stock in the future.
C) Future generations may be better off if the rate of return on the borrowed funds is higher than the interest rate paid to foreign residents.
D) The public debt cannot be held by foreign residents therefore we really owe the debt to ourselves.

Question

Quizplus · Accepted Answer

If the borrowed funds are invested in projects that have a higher rate of return than the interest rate paid on the debt, future generations may be better off. This is because those investments will generate income and growth, which can pay off the debt and benefit the economy in the future. Option A is false because it is not always the case that future generations will be worse off due to public debt. Option B is not relevant to the question of public debt and future generations. Option D is false because the government debt can be held by foreign residents.

Which of the Following Statements Is True About the Public