Does the tax go back into paying the bonds? Is this just a big loop in perpetuity?
In: Economics
Most of the economy is a loop. That doesn’t make it unimportant. When you buy something, someone else must sell it. And when they use the money they receive to buy something else, it means someone else sold them something as well. If you borrow money, someone must have lent it to you. This means you can spend the money immediately while the lender has deferred their spending and the price that the borrower pays to the lender for that deferral is interest. So this is shifting consumption over time.
It is when everyone contributes their share of production and consumption in this cycle, that it becomes an economy.
Yes, part of tax revenue does go towards paying back the interest and principal of the bond. This is simply asking the bond buyer to save and allows the government to spend more money now. It is still a cycle since what the government spends on (building bridges, paying salaries etc) goes back into the economy as earnings to someone else.
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