Point out the redemption methods of Public Debt.

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Q. Point out the redemption methods of Public Debt.

Telangana TsbieTSBIE Telangana Intermediate (1st Year) Commerce Board 2022Subjective· 5mImportance★★★★★

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Redemption of public debt is the process of repaying government loans. The chief methods are: Sinking Fund (setting aside money every year to repay debt); Conversion (changing high-interest old loans into lower-interest new loans); Budgetary Surplus (using the excess of revenue over expenditure to repay debt); Terminal Annuity (repaying debt in equal yearly instalments); Additional Taxation (raising special taxes to repay debt); Refunding (issuing fresh bonds to pay off maturing bonds); and Capital Levy (a special one-time tax on wealth/capital to clear heavy debt).

Meaning

Public debt is the money borrowed by the government from the public, institutions or abroad. 'Redemption' means the repayment of this debt. The government uses several methods to redeem its debt in an orderly way.

Methods of Redemption of Public Debt

Sinking Fund: the government sets aside a fixed sum of money every year into a separate fund, which accumulates with interest and is used to repay the debt on maturity. This is a safe and systematic method.
Conversion: old loans carrying a high rate of interest are converted into new loans carrying a lower rate of interest when the market interest rate falls. This reduces the interest burden.
Budgetary Surplus: when government revenue exceeds its expenditure, the surplus is used to repay a part of the public debt.
Terminal Annuity: the government repays the debt in equal annual instalments (annuities) over a period, so that the whole debt is cleared by the end of the term.
Additional Taxation: the government imposes new or higher taxes and uses the proceeds specifically to repay debt. This shifts the burden to current taxpayers. …

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Q.Point out the redemption methods of Public Debt.

Concept understanding — Government Budget Receipts (Revenue and Capital Receipts)

Two Kinds of Money the Government Takes In

Revenue Receipts — Regular, No Strings

Capital Receipts — Debt or Sold Assets

The Simple Decision Rule

Meaning

Methods of Redemption of Public Debt

Q.Point out the redemption methods of Public Debt.

Meaning

Methods of Redemption of Public Debt

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