In our two-period model, the government must pay off all debt, in reality
A) this is approximately correct.
B) only developing countries can perpetually run deficits.
C) governments take longer than two-periods to pay off debt, but almost always do.
D) only countries in the European Union are unlikely to ever pay off their debt.
E) governments rarely pay off all of their debt.

Question

Quizplus · Accepted Answer

In reality, governments rarely pay off all of their debt. While some countries may make progress in paying down their debt, it is often difficult to completely eliminate all debt, especially in the face of unexpected economic shocks or political instability. Additionally, some governments may choose to maintain a certain level of debt as a way to finance infrastructure projects or stimulate economic growth. Thus, while our two-period model provides a useful framework for thinking about government debt, it is not a perfect representation of reality.

In Our Two-Period Model, the Government Must Pay Off All