📚 Learning Guide
Fiscal Policy and National Debt
easy

What is the primary concern of a government when it increases its national debt through fiscal policy?

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Learning Path

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Choose the Best Answer

A

It may lead to higher inflation

B

It will always reduce unemployment

C

It guarantees future tax cuts

D

It ensures immediate economic growth

Understanding the Answer

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Answer

When a government increases its national debt through fiscal policy, its primary concern is the long-term impact on the economy. This means that borrowing money can help fund important projects like schools and roads, but if the debt grows too large, it can lead to higher interest payments that take away money from other important services. For example, if a country borrows a lot to pay for infrastructure, it might have to cut back on healthcare or education later on because it needs to pay back the loans. Additionally, a high national debt can make investors worried, which might lead them to demand higher interest rates, making future borrowing more expensive. Ultimately, the government must balance the immediate benefits of spending with the future costs of repaying that debt.

Detailed Explanation

When a government borrows money, it can lead to higher prices for goods and services. Other options are incorrect because Some think that borrowing money will always create jobs; Many believe that more debt means lower taxes in the future.

Key Concepts

National debt
Topic

Fiscal Policy and National Debt

Difficulty

easy level question

Cognitive Level

understand

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