Classification of public debt:

The public debt may be classified as under
1.    Internal and External debt:
•    Amount borrowed from within the country and the lenders may be individuals, groups, banks, non-banking companies and others companies willing to invest at higher profits. External debt is owed to the foreign government or institutions.
2.    Short-term & Long-Term debt:
•    Short-term debt is paid within 12 months e.g. treasury bills payable after 3 months, ways and means advances from central bank. They are usually taken to cure the difference between current expenditure and current revenue. Also called floating debt.
•    Long-term loans are payable after a period of more than 1 year. Also called funded debt. Example includes long-term loan. Mortgage from bank.
3.    Productive and unproductive:
•    The productive debt is expected to create assets which will yield income to sufficient to pay the principal. In other words, they are expected top pay their way: they are self liquidating. For example if government takes loan and invest to encourage education, such a loan will be proved effective and productive. Another case may be that government takes loan and establish industry for producing value added goods; this is also a productive loan. On the other hand loans raised for war do not create any asset; they are deadweight and regarded as unproductive. Funds borrowed for reconstruction after war or panics also prove expensive for an economy.


Public debt:

Public debt refers to the borrowing of the government from within the country or from abroad, from private individuals or from association of individuals or from banking or non-banking financial institution. Government borrows money in order to finance the expenditures. The need for public debt arises when there is budget deficit i.e. when expenditure of the government gets bigger than government income. Government just acting as debtor discharge the amount and pays the interest rate agreed on loan. In the world developing countries are taking loans for buying technology and especially for industrialization. The amount borrowed is invested in viable projects so that it fulfills the goals of the government and justifies the finance cost


Uses of index numbers:

1.    Adjusting Wages and prices:
- An index number of cost of living can guide us in the adjustment of wages to the chaning    prices.   
2.    Exchange Stability:
- Index number of wholesale price can guide the currency authority in stabilizing the exchange rates.

3.    Comparing the purchasing power of two currencies:
  - index number can be used to compare the purchasing power of two currencies and to fix the purchasing power of parity.

4.    Equitable Discharge of debt:
 - Index numbers can be used as a basis for an equitable discharge of contracts. i.e. borrowing and lending. When prices rise the creditor is a looser for the same amount returned to him has less purchasing power. It should be more just to ensure that the creditor is gets back the same purchasing power. If that is so, then amount of principal should be increased in proportion to the increase in prices. Similarly, when the prices fall the debtor should be given relief to pay less otherwise the burden of the debt will be increased in proportion to the fall in prices.

5.    Measuring changes in prices:-
-    The method index numbers is used fir measuring the changes in the price level. This is essential for maintaining price stability. Price stability is conductive to the maintenance of economic activities desired level.


Index Numbers

In the market the prices of the numerous commodities change on daily basis. The prices of all commodities do not move together. It may be possible that the prices of some commodities may be rising and price of some other commodities may be falling. The rate of change in prices is also different i.e. some prices may be rising faster and some may be rising slower. In order to introduce the element of uniformity the idea of general price level is introduced. This is done by means of index numbers.

Index numbers are devices for measuring the differences in the magnitude of a group of related variables. An index number is a number which indicates the price level at any given date as compared with the level of prices at some standard date called the base.


Theory of money and Prices:

In the theory of money we concerned with the determination of the value of money which has inverse relation with the general price level.. There are two main questions concerning the value of money, viz.,
1. how changes in the value of money(prices) is measured and
1. how the value of money is determined i.e. the factors governing price fluctuation.

Index numbers are used to determine the changes in the value of money


Evils of Money:

Money is facilitating us in many ways but it is not an unmixed blessing. There are many drawbacks associated with money. Money has proved dangerous in several ways.

Economic Instability:- Money is blamed for causing inflation if it is gone out of control. Hence money in the economy can affect in adverse ways. It also upsets debtor- creditor relationship when money is quikly loosing its value.

Wealth Inequalities in the economy:- Money has proved to be a very convenient tool for amassing wealth and of exploitation of the poor by the rich. It has created a yawning gap between ‘haves’ and ‘not haves’ and this only because of existence of money.

Moral depravity:- Money has weekend the moral fiber of man. The major evils in the society are only because of money. People killing others for only money, judges giving selective judgments for money, cause of theft and murder, cause of deception and betrayal. In pursuit of accumulating money we sell our belief and laws killinga the rights of others.