When there are credit market imperfections,an increase in government debt may be advantageous because it
A) discourages credit-constrained consumers from borrowing too much.
B) increases the welfare of credit-constrained consumers.
C) eliminates the problems that cause credit market imperfections.
D) encourages more private saving.
E) borrow at higher interest rates than consumers.

Question

Quizplus · Accepted Answer

When there are credit market imperfections, credit-constrained consumers are unable to access credit at reasonable rates. An increase in government debt can lead to lower interest rates, providing credit-constrained consumers with access to affordable credit. This can increase the welfare of credit-constrained consumers.

When There Are Credit Market Imperfections,an Increase in Government Debt