Which of the following statements about national debt are correct?

(A) Deficit can be thought of as a flow variable which adds to the stock of debt
(B) The government finances debt through taxation, borrowing or printing money
(C) Debt owned to foreigners involves a higher burden than debt owned to domestic agents and institutions
(D) Government's debt financing crowds out private borrowers in financial markets

Choose the correct answer from the options given below:

(A), (B) and (C) only

The correct answer is Option (2) → (A), (B) and (C) only

(A) Deficit can be thought of as a flow variable which adds to the stock of debt. Correct. A deficit (e.g., a budget deficit) represents the excess of government spending over its revenues in a given period (a flow). When the government runs a deficit, it typically borrows funds to cover the shortfall, which adds to the accumulated national debt (a stock, measured at a specific point in time). hus, a flow (deficit) contributes to a stock (debt). 
(B) The government finances debt through taxation, borrowing or printing money. Correct. To finance its spending, especially when facing a deficit, the government has three main options. It can raise taxes to generate more revenue, borrow funds either from the domestic market or foreign sources, or resort to printing more money.
(C) Debt owned to foreigners involves a higher burden than debt owned to domestic agents and institutions. Correct. This statement is correct because external debt, or debt owed to foreign entities, necessitates a real transfer of economic resources out of the domestic economy. When the government makes interest payments or repays the principal on foreign-held debt, these funds leave the country, reducing the nation's net wealth and potentially exerting pressure on the exchange rate. In contrast, internal debt, or debt held by domestic citizens and institutions, involves a redistribution of wealth within the country—from taxpayers to domestic bondholders.
(D) Government's debt financing crowds out private borrowers in financial markets. This is not necessarily correct. While it is true that when the government borrows heavily from the financial markets, it may compete with private borrowers for available funds and potentially drive up interest rates—this effect, known as "crowding out," does not always occur. If the economy has unutilized resources and the government’s borrowing leads to higher production and income, then the overall level of savings in the economy may increase. In such a case, both government and private borrowers can access more funds without restricting each other. Therefore, the crowding-out effect is not automatic and depends on the economic context—particularly whether the economy is operating below full capacity or not.

NCERt: "It has been argued that there is a decrease in investment due to a reduction in the amount of savings available to the private sector. This is because if the government decides to borrow from private citizens by issuing bonds to finance its deficits, these bonds will compete with corporate bonds and other financial instruments for the available supply of funds. If some private savers decide to buy bonds, the funds remaining to be invested in private hands will be smaller. Thus, some private borrowers will get ‘crowded out’ of the financial markets as the government claims an increasing share of the economy’s total savings. However, one must note that the economy’s flow of savings is not really fixed unless we assume that income cannot be augmented. If government deficits succeed in their goal of raising production, there will be more income and, therefore, more saving. In this case, both government and industry can borrow more."