government is taking debt because they spend it all at once and pay it over time so if you spend all at once there will be increase in gdp(multiple increase in gdp as money changes hands multiple times) as well with increase in debt So how come debt becomes larger than gdp
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2$\begingroup$ Can you personal debt be larger than your income? If so, it also works on the aggregate. $\endgroup$– AlexJan 8 at 6:13
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$\begingroup$ you cant compare that way personally you are either lender or borrower if you see that on aggregate economy level there will be both lenders and borrowers $\endgroup$– user43223Jan 8 at 7:42
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1$\begingroup$ Ok, maybe it's impossible and the reported values are a massive scam? Do you agree that government spending is less than 100% of gdp and that some countries have more government debt than GDP? If you aggregate assets and liabilities, yes you will have zero debt globally. However, debt levels are just counting debt. $\endgroup$– AlexJan 8 at 11:23
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2 Answers
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GDP is yearly gross income of a country. Debt can be larger than a yearly gross income of a country, company or a person.
Do you have mortgage on your house? If so your debt is probably several times higher than your gross yearly income. Does start up company borrow large sum of money to start a factory? Again probably that will lead to their debt ratio to be over 1. If country borrows a lot of money same thing will happen. There is nothing suspicious about it.
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The key difference to consider is that GDP (or income) is a flow variable, whereas debt is a stock variable. A flow variable is something measured over a certain period of time (months, quarters, years), say income received over a year. A stock variable is measured at a particular point in time, for example, at the end of a year; see also here. For a related question and answer see here.
This fundamental difference does not go away even in the very rare cases where the multiplier of spending borrowed money ultimately pays for the debt.
