Question:
Among the following, who first proposed that internal government debt does not create a burden for the future generation?
Among the following, who first proposed that internal government debt does not create a burden for the future generation?
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According to A. P. Lerner, internal debt is a redistribution within the economy, unlike external debt, which shifts resources abroad.
Updated On: Sep 1, 2025
- N. Gregory Mankiw
- Martin Feldstein
- Harvey S. Rosen
- A. P. Lerner
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The Correct Option is D
Solution and Explanation
Step 1: Internal vs external debt.
Internal government debt is owed to citizens of the same country, while external debt is owed to foreigners. The debate centers on whether internal debt burdens future generations.
Step 2: A. P. Lerner’s contribution.
A. P. Lerner, in his functional finance approach, argued that internal debt does not create a direct burden on future generations because repayment involves transfers within the same economy (from taxpayers to bondholders). Hence, society as a whole does not lose wealth.
Step 3: Eliminate other options.
- N. Gregory Mankiw, Martin Feldstein, and Harvey Rosen are modern economists but not the originators of this proposition.
Thus, the correct answer is (D) A. P. Lerner.
Internal government debt is owed to citizens of the same country, while external debt is owed to foreigners. The debate centers on whether internal debt burdens future generations.
Step 2: A. P. Lerner’s contribution.
A. P. Lerner, in his functional finance approach, argued that internal debt does not create a direct burden on future generations because repayment involves transfers within the same economy (from taxpayers to bondholders). Hence, society as a whole does not lose wealth.
Step 3: Eliminate other options.
- N. Gregory Mankiw, Martin Feldstein, and Harvey Rosen are modern economists but not the originators of this proposition.
Thus, the correct answer is (D) A. P. Lerner.
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