If a Nation Has Default Costs (Punishment Costs) = C

question 127

Multiple Choice

If a nation has default costs (punishment costs) = c, as a percent of GDP, every extra dollar paid toward the debt is equivalent to:

• A) a dollar's saving in interest over time.
• B) giving more income to the creditors.
• C) a loss of consumption of (1 - c) dollars.
• D) raising the burden of the debt by 1/(1 - c) dollars.

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