A large government debt increases the amount of capital in the economy and thereby increases future incomes and real wages.

Question

Quizplus · Accepted Answer

A large government debt can crowd out private investment, leading to a decrease in capital accumulation and potentially lowering future incomes and real wages. Additionally, the need to pay interest on the debt can lead to higher taxes, which can also lower real wages.

A Large Government Debt Increases the Amount of Capital in the Economy