The government debt tends to rise when GDP rises, and tends to fall when GDP falls.

Question

Quizplus · Accepted Answer

This statement is false. The relationship between GDP and government debt is not direct. While a strong economy can lead to higher tax revenues, which can decrease the government debt, it is also possible for a government to increase spending during an economic boom, causing the debt to rise. Likewise, during a recession, government spending may increase and tax revenues may decrease, causing the debt to rise even though GDP is falling.

The Government Debt Tends to Rise When GDP Rises, and Tends