Question

Which of the following statements is TRUE of the global debt crisis?

a)Fiscal imbalances are the least important source of risk and uncertainty in the global business environment.

b)The smallest proportion of government debt results from national pension and healthcare programs.

c)Debt has substantially decreased in major advanced economies mainly due to excessive government spending.

d)When a government tries to pay down its debt, money is drawn out of the national money supply, which hinders economic activity and reduces tax revenues.

Answer 1

Answer:

The correct answer is (D)

Explanation:

Governments are liable to pay foreign debt, in order to do so they usually take money out of reserves to pay the debts. When money is drawn out of national supply it leads to decrease in money supply and depreciation of national currency. A depreciation of domestic currency hinders economic activity and reduces tax revenue and ultimately global debt crises.