The debt relief Laffer curve implies that
A) Expected debt repayments always rise with the level of debt
B) Expected debt repayments always fall with the level of debt
C) Expected debt repayments first rise and then fall with the level of debt
D) Expected debt repayments first fall and then rise with the level of debt
E) Expected debt repayments and the level of debt are unrelated

Question

Quizplus · Accepted Answer

The debt relief Laffer curve suggests that expected debt repayments first increase as the level of debt increases, reach a maximum point, and then start decreasing. This means that if a country has too much debt, reducing it through debt relief may actually increase expected repayments, while reducing the debt to a certain optimal level could lead to lower expected repayments. Therefore, there is an optimal level of debt relief that can maximize the benefits for both debtors and creditors.

The Debt Relief Laffer Curve Implies That