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.
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