Incurring debts to finance spending. This is done by individuals, firms, and governments. Borrowing is desirable when the benefits from using borrowed money are greater than the interest costs. This may be because of urgent need for individual spending or sudden falls in income, or favourable investment opportunities for firms. Similarly, governments borrow to spend when borrowing is less costly than taxation; too much borrowing causes debt service to become burdensome. Countries borrow when they want to invest more than they save. This is worthwhile if investment is very productive; however, too much borrowing leads to balance-of-payments problems.
|Reference: Oxford Press Dictonary of Economics, 5th edt.|