Compare and contrast the burden of internally financed debt to externally financed debt.

What will be an ideal response?

The debt held by U.S. households and institutions is known as the internal debt. The burden of the internal debt is the opportunity cost of the debt-financed activities. If the private sector lends the dollars to the government and it spends the dollars, then the private sector has given up the option of choosing certain output. Internal deficit financing changes the mix of output toward more public sector goods. The debt held by foreign households and institutions is known as the external debt. At the time the debt is sold externally, there are no opportunity costs. The costs occur when the debt is repaid in the future with the export of U.S. goods and services or the selling of real assets such as land or factories.