Which of the following concerns about the national debt are substantive?
Check all that apply.
a. Paying off the U.S. national debt will require future generations of Americans to decrease their purchases of goods and services by an amount equal to the existing debt.
b. Government's borrowing to refinance the debt may lead to higher interest rates. Higher interest rates reduce investment spending, leaving future generations with a smaller stock of capital goods.
c. The large U.S. national debt is in danger of bankrupting the federal government.
d. As government securities mature, portions of the national debt come due. When this occurs, the only way for the government to obtain the necessary funds is to raise taxes or cut expenditures.
Government Debt refers to the borrowing of government which is used for the public welfare. Higher borrowings lead to higher government deficit. It should be managed properly as it can influence the economic growth of a country.
Answer and Explanation:
Option (B)Government's borrowing to refinance the debt may lead to higher interest rates. Higher interest rates reduce investment spending, leaving future generations with a smaller stock of capital goods is correct.
This option is correct because government borrowings for financing the debt can lead to situation of debt trap. It can cause a huge debt on the government. The interest rate tends to rise when a government tries to pay debt through borrowings.This put a huge pressure on future government to payoff the debt. It reduces the investment oppurtunities in long run as most of the funds get diverted in payment of interest on government debt.
The other options are not substantive as they can be managed in future. The debt can be lowered in long run by using proper and fiscal policy. But a situation of debt trap greatly destroys the economy of country.
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from Financial Accounting: Help and ReviewChapter 8 / Lesson 7