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Question

Difficulty: EasyPublic Debt Types and Management

Which type of public debt is incurred to finance non-revenue-yielding activities, such as military expenditure or emergency relief, leaving behind no physical asset to yield income for its repayment?

  1. Deadweight debtAnswer
  2. B
    Productive debt
  3. C
    Funded debt
  4. D
    Internal debt

Answer

Deadweight debt
Deadweight debt is public debt contracted to finance expenditures that yield no direct economic or financial return, such as wars or administrative emergencies, requiring future tax revenue for debt servicing.

Step-by-Step Solution

1
Analyze the expenditure purpose described in the question stem.
The funds are spent on non-revenue-yielding activities such as war or emergency relief.
Public debt is categorized based on whether the investment yields financial returns to cover debt servicing costs.
2
Match the expenditure characteristics to the correct public debt classification.
Debt incurred for non-asset creating consumption is classified as deadweight debt.
Since no revenue-generating asset is created, the burden of servicing deadweight debt falls entirely on future tax revenues.

Key Concept

Classification of Public Debt by Asset Productivity (Deadweight vs Productive Debt)
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Topics

Public Debt Types and Management

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