Government debt and interest payments on that debt
A) are problems if they grow faster than GDP
B) are unrelated in the short run
C) are unrelated in the long run,but not in the short run
D) generally grow faster than government spending
E) contributed to the crisis experienced by the U.S.economy in the late 1990s

Question

Quizplus · Accepted Answer

If government debt grows faster than GDP, it means that the economy is not growing enough to keep up with the growing debt burden. This can lead to unsustainable levels of debt and interest payments, which can eventually lead to a fiscal crisis. Therefore, government debt and interest payments on that debt are problems if they grow faster than GDP.

B, C, D, and E are incorrect. Interest payments on government debt are related to the level of debt, and they can increase or decrease depending on various factors such as interest rates, inflation, and GDP growth. Government debt and interest payments on that debt can be related or unrelated in the short run or long run, depending on the economic conditions and policies in place. Government spending and debt are also not necessarily linked, as governments can finance their spending through various means, including borrowing, taxation, and printing money. Finally, the crisis experienced by the U.S. economy in the late 1990s was not primarily caused by government debt or interest payments, but rather by factors such as the dot-com bubble, corporate scandals, and geopolitical tensions.

Government Debt and Interest Payments on That Debt