fiscal policy data

Question 1

what was national debt in august 2022

Answer 1

= £2,427.5 (96.6% of GDP)

close to highest level of debt since 1962

Question 2

how much national debt is held by bank of england

Answer 2

in feb 2021, 35% was held by bank of england

now gov owns £875bn of gov bonds

Question 3

other countries vs uk %of gdp

Answer 3

japan = 256.5% of GDP (90% held by japanese investors)
uk = 107.1% of GDP
in 2021

Question 4

reasons why debt is bad

Answer 4

• high interest rates
• higher taxes/low spending in future
• crowding out of private investment/spending
• structural deficit getting worse as ageing population places greater strain on UK’s pension liabilities
• exchange rate - negative impact
• rising interest rates as markets become more reluctant to lend to UK government
• opportunity cost of repayment of debt

Question 5

what does obr expect interest rates to take out of debt

Answer 5

by 2022-23 they expect debt interest spending to reach 83bn

Question 6

why is national debt not bad

Answer 6

• borrowing in recession helps offset a rise in private sector saving. gov borrowing helps maintain AD and prevents falls in spending
• in liquidity trap and zero interest rates, gov can borrow at very low rates for long time (eg japan and uk) because people want to save and buy gov bonds
• austerity measures (cut in spending, raising taxes) = lower growth and cause deficit to remain same % of gdp
• majority of uk debt used to be private sector owned, now bank of england has bought bonds

Question 7

intro

Answer 7

government borrowing changes each year with the economic climate, varying the amount of public sector debt is accumulated and the extremity of its effects. this essay will explore the extent to which both micro and macroeconomic impacts are detrimental