Explain how it is possible for the government debt to grow forever
The debt can grow because the economy grows. If, for example, nominal GDP grows at 3 percent per year, and the debt also grows at 3 percent per year, then the debt will be a constant fraction of GDP. This is perfectly sustainable. Problems arise only if the debt grows faster than GDP. Such a situation cannot prevail forever, because that would imply that the debt would eventually be many times larger than GDP, and the government would no longer be able to pay the interest payments on its debt.
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Figure 4.4 illustrates the supply of tacos. A decrease in the supply of tacos is represented by a movement from
A) point a to point b. B) point c to point b. C) S0 to S1. D) S2 to S1.
A change in any component of aggregate demand creates a larger change in overall aggregate demand. This is the ________ effect, and it means, for example, that a(n) ________ in consumption will cause an even larger ________ in AD
A) multiplier; increase; increase B) growth; increase; decrease C) multiplier; decrease; decrease D) liquidity; decrease; decrease E) liquidity; increase; increase