ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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High private sector debt
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Low interest rate
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Low inflation
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Increased income
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Detailed explanation-1: -Reduced Public Investment. As the federal debt mounts, the government will spend more of its budget on interest costs, increasingly crowding out public investments. Over the next 10 years, the Congressional Budget Office (CBO) estimates that interest costs will total $10.5 trillion under current law.
Detailed explanation-2: -Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment generally account for sharp rises in the national debt.
Detailed explanation-3: -A high debt-to-GDP ratio is undesirable for a country, as a higher ratio indicates a higher risk of default. In a study conducted by the World Bank, a ratio that exceeds 77% for an extended period of time may result in an adverse impact on economic growth.
Detailed explanation-4: -External public debt can have nonlinear impacts on economic growth. Thus, at low levels of indebtedness, an increase in the proportion of external public debt to GDP could promote economic growth; however, at high levels of indebtedness, an increase in this proportion could hurt economic growth.