When there are credit market imperfections, an increase in government debt may be advantageous because it
A)borrows at higher interest rates than consumers.
B)discourages credit-constrained consumers from borrowing too much.
C)encourages more private saving.
D)eliminates the problems that cause credit market imperfections.
E)increases the welfare of credit-constrained consumers.

Question

Quizplus · Accepted Answer

An increase in government debt can provide more resources to credit-constrained consumers, improving their welfare by allowing them to consume or invest more than they otherwise could in the presence of credit market imperfections.

When There Are Credit Market Imperfections, an Increase in Government