Increasing government debt relative to GDP does not cause which of the following?
A) Crowding out
B) An opportunity cost for the funds used to service the debt
C) The possibility of higher taxes in the future
D) Lower interest repayments relative to the size of GDP

Question

Quizplus · Accepted Answer

Increasing government debt relative to GDP does not necessarily result in lower interest repayments relative to the size of GDP. This would depend on the interest rates on the debt and the growth rate of the economy. A higher debt-to-GDP ratio can lead to crowding out, an opportunity cost for the funds used to service the debt, and the possibility of higher taxes in the future.

Increasing Government Debt Relative to GDP Does Not Cause Which