Final answer:
The burden of the internal portion of the debt is incurred when the debt-financed activity takes place. The term 'debt' refers to the accumulation of annual government deficits over time, and this type of borrowing can have significant economic impacts if it becomes large and sustained.
Step-by-step explanation:
The burden of the internal portion of the debt is incurred when the debt-financed activity takes place. This is because the government borrowing and debt accumulation is related to fiscal activities, such as spending on various programs, which often occurs before the debt comes due. Unlike private debts where the loss of purchasing power is immediate upon repayment, government debt is typically serviced by collecting taxes and reallocating funds within the economy, often redistributing money rather than representing a direct loss of purchasing power, except in cases where the debt is owed to foreign entities.
Understanding the difference between deficit and debt is crucial in this context. A government deficit occurs when the government spends more than it collects in taxes in a given year. The debt, on the other hand, is the accumulation of these annual deficits over time. If the government consistently runs deficits without a surplus, this contributes to a growing national debt. Moreover, sustained large-scale borrowing by the government can lead to significant economic impacts, such as reducing financial capital available to the private sector, leading to trade imbalances, and potentially causing financial crises.