Distinguish between productive debt and unproductive debt citing an ex

1.	Distinguish between productive debt and unproductive debt citing an example of each.
Answer» Productive debt is used to purchase a productive asset: i.e.. one that will produce a profit while serv icing the debt. Debts used for the purchase of a rental property, equipment for a business, or perhaps dividend-paying stocks can be considered “productive” if they earn a profit. Unproductive debt is the debt used to finance activities that did not increase productivity. Unproductive debt is that debt which is incurred to cover any budgetary deficits or for such purposes as do not yield any income to the government in times of war for example. The interest and sinking fund, if any, on this type of debt must be obtained from some other source of public income, generally from taxation and, since there is no corresponding asset created, there is no rule regarding the period of repayment.

Distinguish between productive debt and unproductive debt citing an example of each.

Answer»

Productive debt is used to purchase a productive asset: i.e.. one that will produce a profit while serv icing the debt. Debts used for the purchase of a rental property, equipment for a business, or perhaps dividend-paying stocks can be considered “productive” if they earn a profit. Unproductive debt is the debt used to finance activities that did not increase productivity.

Unproductive debt is that debt which is incurred to cover any budgetary deficits or for such purposes as do not yield any income to the government in times of war for example. The interest and sinking fund, if any, on this type of debt must be obtained from some other source of public income, generally from taxation and, since there is no corresponding asset created, there is no rule regarding the period of repayment.

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