A country that is unable to service its foreign debt may be forced to
A)depreciate its currency
B)tighten fiscal policy
C)reduce government regulations and privatize state-owned firms
D)undergo a major recession before the economy can improve
E)all of the above

Question

Quizplus · Accepted Answer

If a country is unable to service its foreign debt, it may have to take all of the above actions. Depreciating its currency can make its exports cheaper and more attractive, which can boost demand for its goods and services in foreign markets. Tightening fiscal policy can reduce government spending and help the country get its fiscal house in order, which can reassure international investors. Reducing government regulations and privatizing state-owned firms can make it easier for foreign companies to invest in the country and help the country's economy become more competitive. However, these actions can also be painful and require a major recession before they take effect.

A Country That Is Unable to Service Its Foreign Debt