The current level of government borrowing has become a topical issue for discussion causing observers to wonder whether borrowing is good or bad. In the light of this, you are required to:
Required:
Evaluate the effect of government borrowing on the economy of Ghana. (4 marks)
View Solution
- Effects on Production
Public debts are raised to finance productive enterprises of various kinds, e.g., steel works, cement, multipurpose projects, construction of ships, railway lines and highways, heavy electrical and engineering works, mining, oil refining, - Effects on Consumption
When people subscribe to government loans, they generally have to curtail consumption. Since investment of funds raised by borrowing raises the level of employment and as a result raises the level of consumption. - Effects on Distribution of wealth
Public loans transfer money from rich to government. The fiscal operations of the government are to benefit the poor primarily. The incomes of the poor increase directly through increased employment or it benefit them in directly through the enlargement of social services. - Effects on the Level of Income and Employment
In modern times, public borrowing is resorted to in order to raise funds for financing agriculture, industry, mining, transportation, communication, etc. It increases employment opportunities, the level of income and standard of living.