External Debt Rises from 5 Percent of GDP to Over

question 52

Multiple Choice

External debt rises from 5 percent of GDP to over 30 percent of GDP. This increase in external debt is:

• A)not a potential problem because repayment does not imply a net reduction in the income of an average citizen.
• B)not a potential problem because government debt differs from the debt of individuals.
• C)a potential problem because government debt is no different from the debt of individuals.
• D)a potential problem because repayment implies a net reduction in the income of an average citizen.

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Definitions:

Expected Return

The projected average return on an investment, accounting for all potential outcomes and their probabilities.

Expected Market Return

The average return anticipated from an investment in a broad market index over a certain period.

Expected Return

The anticipated return on an investment based on the probabilities of possible outcomes.

Risk-Free Rate

The expected earnings from an investment that carries no risk of losing money, typically exemplified by the return on government bonds.