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Home National Debt and Income Determination Short Term Loans


Short Term Loans:




There are periods when a government is not able to meet its expenditure from the tax receipts. It then takes recourse to borrowing. The loans which are payable within a year are termed as short term loans.




(i) If at any time, tile expenditure of the government exceeds its revenue, then it takes recourse to short term borrowing.


(ii) If, at any time, the rate of interest in the market is very high and the government is in need of large amounts of money to finance its various projects, then it raises loan for a short period only and waits till the prevailing high rate of interest comes down.


(iii) The commercial banks find a very safe and profitable opportunity to invest their surplus funds in the government short term loans.


Disadvantages/Drawbacks of Short Term Loans:


(i) If a short term loan is taken at a lower rate of interest for paying off a debt raised at a higher rate, then it won't produce any unhealthy repercussions. But if the short term debt is contracted for ah unnecessary expenditure, then people lose faith in the financial stability of the country.


(ii) The commercial banks find treasury bills as the most safest and profitable form of investment, they divert their resources from trade and industry and invest their funds in treasury bills. The economic progress of the country is thus badly affected.


(iii) When a government is in debt, it becomes very difficult for her to get out of it. As one temporary loan matures, the government being unable to pay it issues another loan to pay off the first and this process continues for an indefinite period.


(iv) Another drawback of this lean is that if at any time some emergency arises, then new loans in large amounts cannot be easily raised because the government is already under debt.

Relevant Articles:

What is Federal Budget
What is National Debt
Classification/Types/Categories of National Debt
Short Term Loans
Long Term Loans
Methods of State Borrowing
Methods of Paying Public Debt
Burden of National Debt
National Debt and Economic Stability

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance

History of Money

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