debt forgiveness

Examples of debt forgiveness in the following topics:

• The Capital Account

  • Capital transfers include debt forgiveness, the transfer of goods and financial assets by migrants leaving or entering a country, the transfer of ownership on fixed assets, the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance taxes, death levies, and uninsured damage to fixed asset.
  • For example, if the domestic country forgives a loan made to a foreign country, this transfer creates a deficit in the capital account.

• The Balance of Payments

  • Debt forgiveness would affect the capital account, as would the purchase of non-financial and non-produced assets such as the rights to natural resources or patents.

• Problems of Long-Run Government Debt

  • Government debt limits future government actions and can be hard to pay off because Congressmen are unwilling to do what is necessary to pay down the debt.
  • The problem with debt is that it must be paid off with future revenues.
  • To pay off the debt, the government must maintain a certain level of income.
  • This means it will be more expensive for that country to raise funds by issuing debt.
  • Publicly issued debt is one means governments use to fund expansionary fiscal policy.

• Cost of capital

  • There are multiple sources of funds, but they are broadly categorized as debt (borrowing money) and equity (selling shares) financing.
  • In order to determine a company's cost of capital, the cost of debt and the cost of equity must be calculated.
  • The cost of debt is composed of the interest rate paid on the bonds or loans.
  • One way of combining the cost of debt and equity to generate a single cost of capital number is through the weighted-average cost of capital (WACC).
  • where D is the value of debt in the company, E is the value of equity, rd is the cost of debt, t is the tax rate, and re is the cost of equity.

• The Definition of Money

  • Money is any object that is generally accepted as payment for goods and services and the repayment of debt.
  • Money is any object that is generally accepted as payment for goods and services and repayment of debts in a given socioeconomic context or country.
  • Usually, the government declares the fiat currency to be legal tender, making it unlawful to not accept the fiat currency as a means of repayment for all debts.
  • A "standard of deferred payment" is an acceptable way to settle a debt--a unit in which debts are denominated.
  • The status of money as legal tender means that money can be used for the discharge of debts.

• Introducing Aggregate Demand

  • Many societies have increasingly adopted debt and credit as an integral part of their economic system.
  • This has justified the incorporation of debt (also called the credit impulse) into the larger framework of aggregate demand.
  • From a quantitative perspective this is simply expressed as: Spending = Income + Net Increase in Debt.

• Normative and Positive Economics

  • This graph shows the debt increases in the United States from 2001-2009.
  • Positive economics would provide a statement saying that the debt has increased.
  • Normative economics would state what needs to be done in order to work towards resolving the issue of increasing debt.

• The Importance of Aggregate Decisions about Consumption versus Saving and Investment

  • Spending = Income – Net Savings = Income + Net Increase in Debt
  • In words: what you spend is what you earn, plus what you borrow: if you spend $110 and earned $100, then you must have net borrowed $10; conversely if you spend $90 and earn $100, then you have net savings of $10, or have reduced debt by $10, for net change in debt of –$10.

• Capital Market

  • A capital market is a financial exchange for the buying and selling of long-term debt and equity-backed securities.
  • A capital market is a financial exchange for the buying and selling of long-term debt and equity-backed securities ( ).

• Distribution Effects of Inflation

  • Those with negative savings (debt) or savings in the form of stocks, however, are better off with higher inflation.
  • In demographic terms, this often manifests as a transfer from older individuals, who are wealthier and tend to hold their savings in more conservative assets such as cash and bonds, to younger individuals, who have more debt and tend to hold their savings in more aggressive assets such as stocks.