When countries have extremely high debt levels,expansionary fiscal policy could cause AD to contract.

Question

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When a country has high debt levels, investors may become concerned about the government's ability to repay their debt. When expansionary fiscal policy is implemented, it often involves an increase in government spending or a decrease in taxes, which could lead to an increase in aggregate demand (AD). However, if investors are worried about the country's debt levels, they may respond to the increase in AD by selling government bonds, which could cause interest rates to rise. Higher interest rates could then reduce the amount of borrowing and spending in the economy, leading to a contraction in AD. Therefore, expansionary fiscal policy could cause AD to contract in countries with high debt levels.

When Countries Have Extremely High Debt Levels,expansionary Fiscal Policy Could