What is government borrowing primarily used for?
a) To fund private sector investments
b) To finance national security programs
c) To bridge the fiscal deficit and fund public expenditures
d) To pay interest on external debt
Which of the following is a form of government borrowing?
a) Issuing government bonds
b) Private bank loans
c) Corporate financing
d) Stock market investments
What is public debt?
a) The total amount of money a government borrows from international organizations
b) The money owed by the private sector to the government
c) The total amount of money the government owes to external and domestic creditors
d) The amount of money borrowed by state-owned enterprises only
What is a key consequence of high public debt?
a) Increased economic stability and growth
b) Higher government spending on welfare programs
c) Increased burden on taxpayers and future generations
d) Improved credit rating and international relations
Which of the following can result from excessive government borrowing?
a) Low inflation rates
b) A fiscal surplus
c) Rising interest rates
d) Strong currency value
How does government borrowing typically affect the interest rates in the economy?
a) Borrowing tends to lower interest rates
b) Borrowing generally raises interest rates as it increases demand for capital
c) Borrowing has no effect on interest rates
d) Borrowing stabilizes interest rates by controlling inflation
What is the main purpose of issuing government bonds?
a) To finance the private sector
b) To raise funds for public projects and manage national debt
c) To decrease foreign exchange reserves
d) To offer incentives for international investors
What is one of the risks associated with excessive government borrowing?
a) Reduced government revenue
b) Increased inflation due to the creation of excess money supply
c) Loss of sovereignty in economic decision-making
d) Negative impact on social welfare programs
Which of the following is the primary source of domestic government borrowing?
a) Foreign loans
b) Bonds issued to local investors
c) International financial aid
d) Taxes and revenue collection
How does government borrowing affect inflation?
a) It has no impact on inflation
b) Excessive borrowing can increase inflation if it leads to greater money supply
c) Borrowing reduces inflation by stabilizing the economy
d) Borrowing always leads to a decrease in inflation
What is the relationship between public debt and a country’s credit rating?
a) Public debt has no impact on credit ratings
b) Higher public debt usually lowers the country’s credit rating
c) High public debt always improves the country’s credit rating
d) Public debt can increase the country’s credit rating when managed effectively
What happens when a government defaults on its debt?
a) The national currency appreciates in value
b) The government faces penalties from international creditors
c) The government gains credibility in global markets
d) The national stock market experiences immediate growth
What does fiscal sustainability mean in terms of public debt?
a) A government’s ability to meet its debt obligations without excessive borrowing
b) A government’s ability to increase public spending regardless of debt levels
c) A country’s capability to borrow without any conditions
d) A government’s ability to completely eliminate public debt
Which of the following can help manage a country’s public debt?
a) Increasing foreign direct investment
b) Cutting taxes significantly
c) Raising interest rates on government bonds
d) Implementing fiscal and monetary reforms to improve budget balance
What is one of the main consequences of high public debt on government policies?
a) It allows for more government spending without restrictions
b) It forces the government to cut spending and increase taxes to reduce the deficit
c) It encourages the government to offer higher subsidies to key sectors
d) It results in fewer regulatory measures to control inflation
How can excessive borrowing lead to a debt trap?
a) The government can use borrowed funds to invest in high-return projects
b) The government might struggle to repay loans and borrow more, resulting in higher debt levels
c) Borrowing leads to economic diversification and growth
d) Excessive borrowing lowers national income and reduces debt
Which of the following is a common outcome of government borrowing from international creditors?
a) Decreased foreign investment
b) A rise in national savings
c) A potential increase in foreign debt obligations
d) A reduction in national debt
How do high levels of public debt affect economic growth?
a) High public debt stimulates growth by providing funds for infrastructure
b) High debt levels can constrain economic growth due to higher interest payments and reduced government spending
c) Public debt has no effect on economic growth
d) High debt levels always lead to increased economic growth through borrowing and spending
What role do central banks play in managing government debt?
a) Central banks help governments manage debt by controlling interest rates and inflation
b) Central banks always provide direct loans to governments without conditions
c) Central banks do not participate in managing government debt
d) Central banks ensure that public debt remains non-existent in the economy
What is the impact of high public debt on future generations?
a) High public debt does not impact future generations
b) Future generations will benefit from the borrowing as it leads to economic growth
c) High public debt may lead to higher taxes and reduced government services for future generations
d) High public debt encourages more government welfare for future generations
Which of the following is a potential benefit of government borrowing?
a) Reduced need for taxes and fees
b) The ability to finance important projects without increasing taxes immediately
c) Increased national debt without consequences
d) Greater economic inequality
What is one of the factors that determine the cost of government borrowing?
a) The amount of money the government wishes to borrow
b) The reputation of the borrowing country’s political leaders
c) The interest rates set by central banks and the country’s credit rating
d) The total population of the country
What is the main difference between external debt and domestic debt?
a) External debt is owed to foreign lenders, while domestic debt is owed to local lenders
b) External debt has no interest, while domestic debt does
c) External debt is always less risky than domestic debt
d) External debt is paid in foreign currency, while domestic debt is paid in the local currency
What is a potential risk of relying too heavily on external debt?
a) Increased control over domestic economic policies
b) A dependence on foreign currency and vulnerability to exchange rate fluctuations
c) Reduced government revenue
d) Decreased foreign investment in domestic projects
What is a common measure to ensure sustainability of public debt?
a) Limiting the amount of government borrowing to below a certain threshold of GDP
b) Issuing bonds with no maturity date
c) Expanding government spending to boost the economy
d) Borrowing exclusively from foreign lenders
How can the government reduce its reliance on borrowing?
a) By increasing government debt
b) By raising taxes and increasing revenue
c) By cutting wages for public servants
d) By selling state-owned assets to private investors
What is the consequence of unsustainable public debt?
a) Increased capacity to fund new government projects
b) Declining confidence from investors and foreign creditors
c) Boosted investor confidence in the economy
d) Greater economic freedom and less regulatory burden
What type of debt is typically more expensive for a government to service?
a) Domestic debt with low interest rates
b) External debt with higher interest rates and exchange rate risks
c) Short-term debt with long repayment schedules
d) Debt that is issued exclusively for infrastructure projects
How do government borrowing and spending influence a country’s aggregate demand?
a) Government borrowing and spending decrease aggregate demand by raising taxes
b) Government borrowing and spending increase aggregate demand by providing more disposable income
c) Borrowing and spending have no impact on aggregate demand
d) Borrowing reduces aggregate demand while spending boosts it
