Set 1
How does going into sustainable debt impact the AD curve
right shift
Expansionary fiscal policy
What are the potential advantages of borrowing for a country’s economy if done sustainably?
Borrowing, when done sustainably, can boost economic growth by funding expansionary fiscal policies. It can help decrease unemployment, improve healthcare, education, and infrastructure, and increase aggregate demand.
How does the concept of “crowding out” affect private sector investments when a government borrows excessively?
Excessive government borrowing can monopolize available funds in the financial market, leaving less capital for private investors. This reduces private sector investment, slowing economic growth
what is a budget deficit?
A budget deficit occurs when a government spends more money than it collects in revenue (like taxes) over a specific period
What is “debt servicing,” and how can it negatively impact public spending on essential services like healthcare and education?
Debt servicing involves paying interest and principal on loans. When debt becomes unsustainable, servicing costs consume a large portion of the budget, leaving less money for critical public services like hospitals, schools, and social programs.
how did Norway maintain a sustainable debt
Norway saves oil revenues and invests in long-term growth through its Government Pension Fund.
Why is it important for countries to save during periods of economic growth, and how can this practice protect them during downturns?
Saving during economic growth creates a financial cushion for future uncertainties. It allows governments to manage downturns in the economy without excessive borrowing, maintaining stability and avoiding debt traps.