ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Two of the major impacts of the sovereign debt default are rising inflation and unemployment. However, sovereign debt default also affects the interest rates, domestic stocks, and exchange rates.

Detailed explanation-2: -The term government deficit implies increase in the debt of the government. In other words, if the government continues to borrow to finance deficit, it leads to additional debt.

Detailed explanation-3: -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-4: -This hypothesis posits that public debt crowds out private investment through the high cost of capital and consequently strikes economic growth (Reinhart et al., 2012; Kobayashi, 2015; Anning et al., 2016; Kobayashi and Shirai, 2017).