What does national debt mean?

National debt in finance refers to the total amount of money that a government owes to its creditors. This debt is accumulated through the government's borrowing activities, such as issuing bonds and treasury bills, to finance its various expenditures and obligations. The national debt is a key indicator of a country's financial health and can have significant implications for its economy, as it represents the government's liability to repay the borrowed funds with interest. The national debt is typically measured as a percentage of the country's gross domestic product (GDP), which provides a comparison of the debt relative to the size of the economy. A high national debt-to-GDP ratio can indicate that the government is heavily reliant on borrowing to fund its operations, potentially leading to concerns about its ability to repay the debt and maintain fiscal stability. Additionally, a large national debt can also lead to higher interest payments, which can further strain the government's finances and impact its ability to invest in other areas such as infrastructure, education, and healthcare. Governments may use national debt as a tool to stimulate economic growth by funding public projects and social programs, especially during times of recession or economic downturn. However, excessive national debt can also have negative consequences, such as inflation, reduced investor confidence, and potential downgrades to the country's credit rating. Overall, the national debt plays a critical role in shaping a country's fiscal policy and has far-reaching implications for its economic well-being. Managing the national debt effectively is essential for maintaining financial stability and ensuring sustainable economic growth.