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- 4 Marks
Question
Evaluate the impact of government borrowing (i.e., public debts) on:
- production capacity of the government,
- consumption,
- distribution of wealth
- level of income in an economy. (4 marks)
Answer
- Effects on Production: Public debts are raised to finance productive enterprises such as steel works, cement plants, multipurpose projects, ship construction, railway lines, highways, electrical engineering works, and mining operations.
- Effects on Consumption: Borrowing typically leads to reduced consumption as people subscribing to government loans cut back on spending. However, employment created by the investments raises income and eventually increases consumption.
- Effects on Distribution of Wealth: Public loans shift money from wealthy individuals to the government. Through public fiscal operations, the government primarily benefits lower-income individuals, either directly via increased employment or indirectly through expanded social services.
- Effects on Income and Employment: Government borrowing leads to higher employment opportunities in sectors such as agriculture, industry, mining, and infrastructure. This borrowing results in higher income levels and improved living standards.
- Tags: Economic Impact, Government Borrowing, Public Debt
- Level: Level 3
- Topic: Tax administration in Ghana
- Series: NOV 2017
- Uploader: Dotse