13. In which of the following cases do the sizeof the government’s debt and the

Question

13. In which of the following cases do the sizeof the government’s debt and the size of the budget deficitindicate potential problems for the economy?

a. The government’s debt is relativelylow, but the government is running a large budget deficit as itbuilds a high speed rail system to connect the major cities of thenation.

b. The government’s debt is relativelyhigh due to a recently ended deficit-financed war, but thegovernment is now running only a small budget deficit.

c. The government’s debt is relativelylow, but the government is running a budget deficit to finance theinterest payments on the debt.

Explanation / Answer

The government's debt is low, but the government is running a budget deficit to finance the interest payments on the debt when debt and size indicate problems for problems in the economy.

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