As the size of a nation's outstanding debt gets larger and larger relative to the size of the economy,
A) eventually it will become difficult for the country to borrow in global credit markets.
B) the country will have to pay higher real interest rates in order to induce investors to purchase its bonds.
C) at some point, the country will be more or less forced to bring spending into line with revenues in order to maintain the confidence of investors.
D) all of the above are correct.

Question

Quizplus · Accepted Answer

As the size of a nation's outstanding debt gets larger and larger relative to the size of the economy, eventually it will become difficult for the country to borrow in global credit markets due to increased risk. Additionally, the country will have to pay higher real interest rates in order to induce investors to purchase its bonds, which is a punishment for excessive borrowing. Eventually, at some point, the country will be more or less forced to bring spending into line with revenues in order to maintain the confidence of investors. Therefore, all of the above are correct.

As the Size of a Nation's Outstanding Debt Gets Larger