Which of the following is true of debt financing?
A) Elected political officials will find debt financing attractive because it allows them to provide voters with visible current benefits while pushing the more visible costs into the future.
B) Debt financing is unattractive to elected political officials because voters recognize that excessive debt will lead to the future collapse of the economy.
C) Debt financing is attractive to elected political officials because countries with a higher debt to GDP ratio generally grow more rapidly.
D) Elected political officials will be reluctant to run budget deficits because they recognize that taxes will have to be raised in the future to pay the interest on the larger amount of outstanding debt.

Question

Which of the following is true of debt financing?
A) Elected political officials will find debt financing attractive because it allows them to provide voters with visible current benefits while pushing the more visible costs into the future.
B) Debt financing is unattractive to elected political officials because voters recognize that excessive debt will lead to the future collapse of the economy.
C) Debt financing is attractive to elected political officials because countries with a higher debt to GDP ratio generally grow more rapidly.
D) Elected political officials will be reluctant to run budget deficits  because they recognize that taxes will have to be raised in the future to pay the interest on the larger amount of outstanding debt.

Quizplus · Accepted Answer

Debt financing is attractive to elected political officials because it allows them to provide immediate benefits to their constituents without raising taxes. This is because the costs associated with the debt (interest payments) are often spread out over time, making them less visible to voters. Option B is incorrect because excessive debt can lead to economic collapse, but this does not mean that elected officials will not find debt financing attractive in the short term. Option C is also incorrect - while it is true that some highly-indebted countries have grown rapidly, a high debt to GDP ratio is generally seen as a negative indicator of economic health. Option D is also incorrect because elected officials may still choose to run budget deficits despite the prospect of future tax increases.

Which of the Following Is True of Debt Financing