Which of the following statements is correct?

Question

Quizplus · Accepted Answer

The economy's capacity to pay off its debt can grow over time as the economy grows and becomes more productive. This means that even if the government runs a budget deficit, the economy's ability to generate income can also grow, allowing it to eventually reduce its debt relative to its overall output. Option B is incorrect because productivity can increase over time, allowing for sustained deficits. Option C is incorrect because if the government debt grows faster than the economy's income, it will eventually become unsustainable and lead to a financial crisis. Option D is incorrect because deficits can continue to grow as long as the debt is growing more slowly than the economy's income.

Which of the Following Statements Is Correct