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Difficulty: EasyPublic Debt Types and Management

Which of the following statements correctly describes internal public debt?

  1. It is borrowed from individuals and financial institutions within the borrowing country.Answer
  2. B
    It leads to a direct outflow of economic resources from the domestic nation to foreign creditors.
  3. C
    It must be raised and repaid exclusively using foreign currencies.
  4. D
    It is obtained primarily from multilateral financial institutions such as the International Monetary Fund.

Answer

Internal public debt is borrowed from individuals and financial institutions within the borrowing country.
Internal public debt represents funds raised by the government from domestic creditors (citizens, local banks, and institutions) within its own borders, denominated in the domestic currency.

Step-by-Step Solution

1
Define internal public debt based on the residency of creditors.
Internal public debt refers to loans raised by the government from lenders located inside the country.
The defining distinction between internal and external debt is the geographic location and residence of the creditors.
2
Identify the option that aligns with domestic borrowing.
The option stating that funds are borrowed from individuals and financial institutions within the borrowing country correctly defines internal debt.
Domestic citizens, commercial banks, and local corporations hold internal debt instruments such as Treasury Bills and Treasury Bonds.

Key Concept

Internal Public Debt
Estimated Time:45s
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Topics

Public Debt Types and Management

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