If a Country with a Large Government Debt Uses Money

question 111

Multiple Choice

If a country with a large government debt uses money creation to service and repay the debt, this will lead to

• A) lower interest rates.
• B) an appreciation of the nation's currency in the foreign exchange market.
• C) inflation, higher interest rates, and a financial crisis.
• D) rapid economic growth, as the expansionary monetary policy stimulates the economy and generates the additional tax revenue to service the larger debt.

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Definitions:

Negative Externality

A cost that is suffered by a third party as a result of an economic transaction.

Externalities

Occurs when the consumption or production of a good affects someone who does not directly consume or produce that good, which can be either positive or negative.

Costs

Expenses incurred in the production of goods or in the provision of services, including labor, materials, and overheads.

Benefits

The advantages or positive outcomes gained from actions or decisions, often considered in economic, social, or health contexts.