Government debt service, interest rates, and macroeconomic stability: a conceptual approach

Richard Cebula (), G. Jason Jolley, Kamal Upadhyaya and Franklin Mixon
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G. Jason Jolley: Ohio University, United States of America

Theoretical and Applied Economics, 2025, vol. XXXII, issue 2(643), Summer, 121-128

Abstract: The U.S. national debt exceeded $1 trillion, driven by COVID-19 spending and military conflicts. Debt service payments rose 80.4% in four years, from $521 billion to $940 billion. This paper presents a macroeconomic model analyzing the monetary policy’s impact on debt service and national debt growth. Federal spending is divided into real expenditures on goods/services and interest-sensitive debt payments. The model suggests that if the interest sensitivity of debt payments surpasses that of household/business spending, expansionary monetary policy results in a negative macroeconomic multiplier, posing significant challenges for policymakers amidst growing debt service obligations.

Keywords: government debt service; deficits and debt; fiscal policy; monetary policy; IS-LM; interest rates; real GDP. (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:agr:journl:v:xxxii:y:2025:i:2(643):p:121-128

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