A nation will borrow as long as:

Question

Quizplus · Accepted Answer

A nation will borrow as long as the benefit of consumption smoothing insurance derived from borrowing is greater than the cost of borrowing those funds. This means that the nation sees borrowing as a way to smooth consumption over time, and as long as the cost of borrowing is not too high, they will continue to borrow. The other options are not necessarily true - the supply and demand for domestic credit may not be equal, international creditors may not be willing to lend at lower rates, and foreign currency reserves may not be enough to calm anxious creditors.

A Nation Will Borrow as Long As