Increases in the fraction of national debt held by foreigners _____ the burden of debt service on future generations _____.
A)decrease;because it is easier for the borrowing nation to default on the debt
B)decrease;but may make the country more vulnerable to foreign intervention
C)decrease;because debt servicing accomplished by increases in the money supply is not as inflationary as it would be if all debt were held domestically
D)increase;because taxes to repay the debt are collected within the country but more interest payments on the debt are sent outside
E)increase;because foreign bondholding pushes up interest rates at the date of issue,increasing crowding out

Question

Quizplus · Accepted Answer

If a greater fraction of national debt is held by foreigners, it means that more of the interest payments on the debt will flow outside of the country. However, taxes to repay the debt will still have to be collected within the country, which means that future generations will bear a greater burden of debt service. Therefore, the correct answer is D.

Increases in the Fraction of National Debt Held by Foreigners