High levels of government debt that raise investors' fear of a government default on debt will result in capital ______ and a(n) ______ of the country's exchange rate.

Question

Quizplus · Accepted Answer

When investors fear a government default on debt, they are more likely to withdraw capital from that country, leading to capital outflows. This can cause the country's exchange rate to depreciate as there is less demand for its currency.

High Levels of Government Debt That Raise Investors' Fear of a Government