Macroeconomics Government Borrowing Is Too High and

Macroeconomics Government borrowing is too high and interest rates are too low in many countries; fiscal stimulus does not work and cheap money leads only to inflation. Explain and discuss the various caveats of this macroeconomic problem and what policy measures will you suggest and Why if you are hired as a Junior Policy Advisor in an Advisory Board of Economists in one such country including Canada? Use economic theory, policy, and data to illustrate and validate your answer.

Government borrowing is the money or debt under the jurisdiction of the country. Government borrowing represents the money belonging to the public owed by the central bank of the country's economy. The main source of government funds is tax from the citizens of the country. This makes government debt or borrowing to be an indirect debt of the citizens. In some economic terms, government borrowing refers to public or national debt. In the current states of economies, public debt is on the rise in most nations.

The ways through which government borrows from the public include bonds, securities, and bills. Interest rates refers to the interest amount which the borrower accompanies the debt payment. It also refers to the rate at which central banks and commercial banks are willing and able to lend financial items to individuals or companies. The interest rates are extremely low hence reducing the total revenue collection by the government. Government debt and interest rates are crucial items in the macroeconomics analysis of the public economy.

Discussion Increase in the government debt exerts extra burden on the taxpayers. The government debt of Canada as an example in context is approximately $543,022,147,241.02 (Country Intelligence, 2012). This compares to the countries experiencing enormous governmental debts. In such cases, the government has no option to raise enough funds to repay the debt. This causes the burden to fall on the citizens who would pay a whopping amount of taxation. The taxation increase can be in the form of increment in the commodity prices or inflation.

One of the main consequences of government debt is an increase in the prices or inflation. Consumers pay more for similar quantity of products than the previous financial year. Inflation robs the consumers of their potential real income hence decrease in the economic power of the society. With the increase on the public debt or national debt, the country faces financial challenges in which they cannot borrow effectively and efficiently from international monetary bodies.

The problem that might arise because of increase in the public debt while other factors remain constant is the decline in the strength of the nations' currency. There is a high probability that the country with high rates of public debt would lose some of the value of its currency in the international market. With lower currency values, there exists imbalance in terms of trade. The exports from the country in context become cheaper to potential buyers in the international market.

The imports crucial to the needs of the country become much expensive hence imbalance of exports and imports of the nation. Government debt also has the tendency to raise interest rates. The aim by the central bank in increasing the interest rates is to reduce the level of the financial burden or national debt. However, this economical phenomenon does not usually apply in all economies.

For instance, the government debt of Canada is on the increase while the interest rate is unusually low (Midthjell, 2011) Lower interest rates have the capacity to shift the interest of potential investors from securities and bonds. This is because of fear to make losses in the form of low return on investment. The investors get little profits for their investments hence they shy from investing in bonds and security market. This scenario limit the amount of revenue the nation can accumulate with full exploitation or investment in the security market.

Low interest rates do not help in alleviating the condition of high country debts. This infer that the financial strategy becomes ineffective in revive the situation in the market hence non-essential. Low interest rates in Canada have the capacity to lead to inflation rather than solve the financial crisis in the form immense national debts. This increases the level of borrowing by the public hence increment in the supply of money within the economy.

Increase of money supply increases the price of goods and services in the economy hence the rate of inflation. Low interest rates also lower the value of the currency at the international level. Decline in the currency level creates enormous difference between the exports and imports. The imports become expensive in contrast to the nations' exports. This increases the financial or economic problems within the nation.

As a Junior Policy Advisor in an Advisory Board of Economists in one such country including Canada, one of the best measures, to correct public debt is through adoption of effective and efficient economic policies. The aim of the government should be to increase the rate of investment within the economy to help revive the declining nation. Such economic policies would ensure that the country lives within its capacity. Reduction of overdependence on public borrowing should be the aim of the government in place.

Efficiency and accountability within the economic policies and entities would reduce the tax burden on the individuals hence survival of the future generation. The government should also conduct gift contributions with the aim of reducing the public debt or national borrowing. The gifts might be in the form of money or tangible commodities. The government should also consider increasing the rate of taxation on the imports. This would provide enough funds to help sustain the public spending or lower the rate of government debt.

This would lessen the burden of taxation on the common citizen who contributes significantly in efforts to revive the economy from financial or economic crisis. The government should also increase the level of interest rates. Interest rates encourages saving and depositing of funds with the commercial banks. The government also has the capacity to repay.