What Are the Two Most Common Reasons for a Sovereign

question 17

Essay

What are the two most common reasons for a sovereign debt crisis?

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Definitions:

Real GDP

The measure of a country's economic output adjusted for price changes and inflation.

Tax Revenues

The income that is gained by governments through taxation, a primary source of public finance.

Transfer Payments

Payments made by the government to individuals without any expectation of a direct return, such as welfare, social security, and unemployment benefits.

Automatic Stabilizers

Economic policies and programs, such as unemployment benefits and progressive taxation, that automatically help stabilize an economy by increasing spending in a downturn and reducing spending in an upswing without additional government action.