In the wake of the financial crisis of 2007-2009, the debt-to-GDP rati

In the wake of the financial crisis of 2007-2009, the debt-to-GDP ratio has risen in many countries around the world. Should the expenditures enabled by this debt be considered government consumption or government investment?

What will be an ideal response?

ANSWER

Probably, government investment. Since a well-functioning financial sector is essential for economic growth, its rescue may be viewed as an investment in the economy’s future productivity. Moreover, the avoidance of an economic depression ensures that economic activity will continue and be taxed, enabling payments on interest and principal.