The document discusses public debt, which refers to loans incurred by governments to finance budget deficits. It provides information on the causes of increased public debt such as budget deficits, public welfare schemes, and economic growth programs. It also discusses the purposes of public debt including covering budget deficits, funding public works programs, and economic development projects. Additionally, the document outlines different classifications of public debt and methods that governments can use to redeem public debt over time through taxation, surplus budgets, sinking funds, and other means.

1. PUBLIC DEBT

2. 2
BUDGET
Balance Budget
Deficit Budget
Surplus Budget
Deficit Finance
Public Debt
Internal
Source
External
Source
Public debt refers to
loans incurred by the
government to
finance its deficit
budget.
The word compulsion
is not applied in the
case of public debt .

3. 3
War or war-preparedness,
including nuclear programs
1.
To cover the budget deficits
on current account
2.
To undertake public welfare
schemes
3.
Urge for economic growth
4.
Inefficiencies of public
organizations and corruption
5.
Causes of Increase
in Public Debt

4. 4
To reduce depression in the
economy and financing public
works programme
1.
2.
Financing economic development
esp. in under-developed countries
3.
Financing the public sector for
expanding and strengthening
the public enterprises.
4.
5.
Purposes of
Public Debt
To curb inflation by withdrawing
the purchasing power from
the public.
War, arms and ammunition
financing

5. 5
2
4
5
SAVING and
Investment PRODUCTION
OTHER
CONSUMPTION
1 DISTRIBUTION
3
Individual's set pattern
of consumption either
no change or in
certain cases may be
increased due to loan
advances is a part of
saving and it is easily
convertible into cash.
Saving is interest
elastic. If rate of
interest is high then
at the time of issuing
bond and debenture
saving and
investment declines
and after the
repayment it will
increase
If this transfer takes
place from the rich
to the poor, the
inequality in the
distribution of
income and wealth
would be reduced
and as a result the
economic welfare of
the community will
be enhanced.
If productive
project then
spent on
investment
that lead to
increase in
production
transparency in convertibility
&
Control inflation

6. 6
BURDEN OF PUBLIC
DEBT MEASUREMENT
Burden of
External
Debt
Burden of
Internal
Debt
No direct money burden but it involves in
real burden.
It has both direct money and real
burden
Measurement
Income-Debt Ratio:
size of public debt/national income = D/Y
Debt-Service Ratio:
Annual interest payments of
borrowing/National income = i/Y
Debt Service-Tax Revenue Ratio:
Annual interest payments/Aggregate tax
revenue = i/T

7. 7
.
Classification of Public Debt
Internal and external debt
1
Short term and long term loans
2
3 Funded and unfunded debt
4 Voluntary and compulsory loans
Redeemable and irredeemable debt
5
Loans floated
in the capital
markets within
the country
if a public loan is
floated in the
foreign capital
markets
Treasury Bills or Ways
and Means Advances
(WMA). Maturity period
of Treasury bill is
usually 90 days.
for a period
exceeding five
years or more
separate fund is
maintained .It is long
term loan
No separate fund is
maintained .It is
short term loan
During emergencies
government may
force the nationals
to lend it
Loans given to the
government by the
people on their own will
and ability are called
voluntary loans.
Government does not make any promise
about the payment of the principal
amount
Promises to pay off at
some future date. After
the maturity period,

8. 8
METHODS OF
REDEMPTION OF
PUBLIC DEBT
viii.
Compulsory
Reduction in
the Rate of
Interest:
vii. Additional
Taxation
iii. Sinking
Fund
i. Refunding ii. Conversion
vi. Budget
Surplus
v. Terminal
Annuity
iv. Capital
Levy
The government
may pass an
ordinance to
reduce the rate
of interest
payable on its
debt.
By imposing a
special tax on
capital in war or
emergency
period
The government
pays off the
debt in equal
annual
installments.
Like sinking
fund
This method is of little use
since modern governments
resort to deficit budget.
By levying new
taxes—both direct
and indirect
Raising new loans
in order to pay off
the matured loans
by converting old but
high interest-bearing
loans into new but low
interest-bearing loans
certain portion of revenue is put
every year in such a way that it would
be sufficient to pay off the debt from
the fund at the time of maturity.

9. White
Is the color of milk and fresh
snow, the color produced by the
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Black
Is the color of coal, ebony, and of
outer space. It is the darkest color,
the result of the absence of or
complete absorption of light.
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10. In two or three
columns
Yellow
Is the color of gold,
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In the spectrum of visible
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Blue
Is the colour of the clear
sky and the deep sea. It is
located between violet
and green on the optical
spectrum.
Red
Is the color of blood, and
because of this it has
historically been
associated with sacrifice,
danger and courage.
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19. Let’s review some concepts
Yellow
Is the color of gold, butter and
ripe lemons. In the spectrum
of visible light, yellow is found
between green and orange.
Blue
Is the colour of the clear sky
and the deep sea. It is located
between violet and green on
the optical spectrum.
Red
Is the color of blood, and
because of this it has
historically been associated
with sacrifice, danger and
courage.
19
Yellow
Is the color of gold, butter and
ripe lemons. In the spectrum
of visible light, yellow is found
between green and orange.
Blue
Is the colour of the clear sky
and the deep sea. It is located
between violet and green on
the optical spectrum.
Red
Is the color of blood, and
because of this it has
historically been associated
with sacrifice, danger and
courage.

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