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

While it is true that the public debt represents a burden on future generations, it is not necessarily the case that they will be worse off. If the borrowed funds are invested in projects or programs that generate a rate of return greater than the cost of borrowing, then future generations may benefit from greater economic growth and prosperity. Additionally, foreign residents can hold U.S. public debt, so statement D is false. B is not related to the public debt and is therefore not relevant.

Which of the Following Statements Is TRUE About the Public