What correctly describes the relationship between gross public debt and net public debt?

The relationship between gross public debt and net public debt is accurately represented by the statement that the net public debt only includes debt held by the public. This distinction is crucial in understanding how these two measures of national debt are calculated.

Gross public debt encompasses the total amount of money the government owes, including all obligations—both to the public and to itself (such as borrowing from different government agencies). This broad measure accounts for all outstanding government liabilities, regardless of the holder.

Net public debt, on the other hand, reflects the portion of gross debt that is owed to external parties, specifically the public, excluding any liabilities that the government owes to itself. This means that net public debt subtracts the intergovernmental holdings (like funds held by Social Security or other government trust funds) from the gross figure. Therefore, by focusing solely on public-held debt, net public debt provides a clearer picture of the government's fiscal obligations to individuals and entities outside of its own structure.

Understanding this relationship helps in analyzing the fiscal health of a government, as net public debt provides insight into how much debt is actually held by outside parties, which can influence economic policy and investment perceptions.