Question

True or false? If false, explain why.

1. The total public debt is more relevant to an economy than the public debt as a percentage of GDP.

2. An internally held public debt is like a debt of the left hand owed to the right hand.

3. The Federal Reserve and federal government agencies hold more than three-fourths of the public debt.

4. As a percentage of GDP, the total US public debt is the highest such debt among the world’s advanced industrial nations.

Short answer

1. False; The public debt as a percentage of GDP shows the economy’s capacity to return the debt while Total debt does not indicate any such thing.

2. True

3. False; In 2018, the US federal agencies and federal reserve held only 38% of the total public debt.

4. False; according to 2017 data, Japan and Italy had a higher debt-to-GDP ratio than the US

Step-by-step solution

Explanation for part (a)

The total public debt gives only the exact figure of public debt.While the public debt as a percentage of GDP gives its comparison with GDP and indicates the capacity to return the debt.The public debt as a percentage may also help determine the time required to repay the debt if the entire GDP is used for repayment purposes.

Therefore, public debt as a percentage of GDP is more useful. Hence, the statement is false.

Explanation for part (b)

An internally held public debt occurs when the government borrows funds from internal authorities such as public, commercial banks, financial institutions, the central bank, and others in the domestic country itself.Since the lender and borrower both belong to the domestic country, the public debts switch hands internally.

Hence, the statement is true.

Explanation for part (c)

In 2018, Out of total public debt in the US, the federal government and federal reserve held only 38% of public debt, which is way less than three-fourth of the total public debt.

Hence, the statement is false.

Explanation for part (d)

In 2017, the total public debt as a percentage of GDP for Japan was 240%, and that for Italy was 130%. In comparison, the US had the public debt for only 80% of its annual GDP. Therefore, other advanced industrial nations have a higher debt-to-GDP ratio than the US. Thus, the statement is false.