A possible problem with accumulating a large public debt is reduced capital formation because savers buy bonds to finance the deficit rather than place their assets in productive investment projects.

Question

Quizplus · Accepted Answer

When savers buy bonds to finance the deficit, they are essentially lending money to the government rather than investing in productive projects. This can lead to a reduction in capital formation, as the funds that could have been invested in productive projects are used to finance government debt instead.

A Possible Problem with Accumulating a Large Public Debt Is