Public Debt: Sources, Sustainability, and Economic Impact

Question 1

When managed responsibly, what is a potential advantage of public debt?

Accepted Answer

Better public infrastructure

Answer

Lower economic growth

Answer

Higher inflation

Answer

Lower government spending

Question 2

Unsustainable public debt can hinder economic growth. Which of the following is a potential negative consequence of unsustainable public debt on economic growth?

Accepted Answer

Higher interest rates

Answer

Increased investment in infrastructure

Answer

Improved consumer confidence

Answer

Increased foreign direct investment

Question 3

What is a potential negative outcome of unsustainable levels of public debt?

Accepted Answer

Currency devaluation

Answer

Increased economic growth

Answer

Reduced inflation

Question 4

Which measure indicates the sustainability of public debt?

Accepted Answer

Debt-to-GDP ratio

Answer

GDP growth rate

Answer

Interest rate

Answer

Inflation rate

Question 5

Which of the following is a potential impact of excessive public debt?

Accepted Answer

Crowding out of private investment

Answer

Improved public services

Answer

Increase in economic growth

Answer

Lower inflation

Question 6

Which of the following is a benefit of public debt, if used responsibly?

Accepted Answer

Increased investment in infrastructure

Answer

Reduced government spending

Answer

Lower taxes

Answer

Improved income distribution

Question 7

Which of the following is **not** a role of the central bank in managing public debt?

Accepted Answer

Setting interest rates

Answer

Monitoring debt levels

Answer

Purchasing government bonds

Answer

Advising the government on debt management strategies

Question 8

Which of the following is a potential consequence of defaulting on public debt?

Accepted Answer

Loss of access to financial markets

Answer

Increased economic growth

Answer

Lower interest rates

Answer

Improved public services

Question 9

Which of the following is a key principle of responsible public debt management?

Accepted Answer

Intergenerational equity

Answer

Complete reliance on taxation

Answer

Unlimited borrowing

Answer

Maximal government spending

Question 10

What is the primary reason for governments to issue bonds?

Accepted Answer

To raise funds for government spending

Answer

To control inflation

Answer

To stabilize the currency

Answer

To stimulate economic growth

Question 11

Which of the following is a potential negative consequence of unsustainable public debt?

Accepted Answer

Economic instability

Answer

Increased investment

Answer

Increased government spending

Answer

Improved living standards

Question 12

What is the 'crowding out' effect in the context of public debt?

Accepted Answer

Government borrowing reduces private investment

Answer

Debt leads to higher government spending

Answer

Public spending increases private consumption

Answer

Bond issuance reduces inflation

Question 13

Which of the following is a policy measure used by governments to manage public debt?

Accepted Answer

Fiscal austerity

Answer

Printing more money

Answer

Tax cuts

Answer

Increasing government subsidies

Question 14

What is the main advantage of using a 'sinking fund' to repay public debt?

Accepted Answer

It reduces the risk of default

Answer

It stimulates economic activity

Answer

It increases government revenue

Answer

It lowers interest rates

Question 15

What is the main idea behind the 'Laffer Curve' in relation to public debt?

Accepted Answer

It suggests that there is an optimal level of debt for economic growth

Answer

It measures the burden of public debt on future generations

Answer

It predicts the future path of interest rates

Question 16

Which of the following is a potential long-term consequence of high public debt?

Accepted Answer

Reduced investment in education and infrastructure

Answer

Increased foreign investment

Answer

Faster economic growth

Answer

Lower unemployment rates

Question 17

What is the purpose of a 'credit rating' in relation to public debt?

Accepted Answer

To assess a government's ability to repay its debt

Answer

To measure the effectiveness of a government's fiscal policy

Answer

To determine the amount of debt owed by a government

Question 18

In the short term, how can public debt impact economic growth?

Accepted Answer

It can stimulate economic growth by increasing aggregate demand.

Answer

It always leads to economic decline.

Answer

It is not related to economic growth.

Question 19

What is the primary purpose of a debt-to-GDP ratio?

Accepted Answer

To gauge the level of public debt relative to the size of the economy.

Answer

To determine the interest rate on government borrowing.

Answer

To predict the future inflation rate.

Question 20

Which of the following is a potential benefit of public debt?

Accepted Answer

It can finance essential public infrastructure and services.

Answer

It reduces the role of the private sector in the economy.

Answer

It always leads to higher economic growth.

Answer

It is always sustainable.

Question 21

What is a key strategy for governments to manage public debt effectively?

Accepted Answer

Implementing fiscal policies that balance spending and revenue.

Answer

Simply increasing taxes.

Answer

Printing more money.

Question 22

Which of the following is a potential disadvantage of public debt?

Accepted Answer

It can potentially reduce resources available for private investment.

Answer

It is always a sign of economic mismanagement.

Answer

It benefits all citizens equally.

Question 23

What is the difference between internal and external public debt?

Accepted Answer

Internal debt is owed to domestic lenders, while external debt is owed to foreign lenders.

Answer

Internal debt is always more expensive than external debt.

Answer

External debt is always a greater risk for a country.

Question 24

Which of the following is a potential method for reducing public debt?

Accepted Answer

Running a budget surplus or engaging in debt restructuring.

Answer

Printing more money.

Answer

Increasing government spending.

Question 25

How can international organizations contribute to addressing public debt issues in different countries?

Accepted Answer

They can provide financial aid and policy advice to assist with debt management.

Answer

They have no role in addressing public debt issues.

Answer

They always impose strict austerity measures on indebted countries.

Question 26

Which of the following is a commonly used measure of public debt sustainability?

Accepted Answer

Debt-to-GDP ratio

Answer

Inflation rate

Answer

Deficit-to-GDP ratio

Answer

Interest rate

Question 27

Crowding out private investment is a potential impact of public debt on:

Accepted Answer

Economic growth

Answer

Increasing inflation

Answer

Stimulating aggregate demand

Answer

Reducing government spending

Question 28

Which of the following is a potential impact of public debt on economic stability?

Accepted Answer

Increasing interest rates

Answer

Stabilizing the exchange rate

Answer

Reducing unemployment

Answer

Improving the balance of payments

Question 29

Gross public debt includes all government liabilities, while net public debt:

Accepted Answer

Excludes government assets.

Answer

Is always higher than gross public debt.

Question 30

Which of the following can be a benefit of public debt?

Accepted Answer

Financing public investment

Answer

Always reducing interest rates

Answer

Never leading to inflation

Answer

Always being easy to repay

Question 31

Which of the following is a risk associated with public debt?

Accepted Answer

Debt crisis

Answer

Never leading to inflation

Answer

Always stimulating economic growth

Answer

Always being easy to manage

Question 32

Internal public debt differs from external public debt in that it is:

Accepted Answer

Owed to domestic creditors

Answer

Always more expensive

Question 33

Which of the following factors does NOT affect the sustainability of public debt?

Accepted Answer

The level of economic inequality

Answer

Economic growth

Answer

Interest rates

Question 34

Which of the following is a potential impact of high public debt on economic growth?

Accepted Answer

Reduced investment opportunities

Answer

Increased consumer spending

Answer

Lower unemployment rates

Question 35

Which fiscal policy measure is most likely to reduce the level of public debt?

Accepted Answer

Budget surplus

Answer

Tax cuts

Answer

Increased government spending

Answer

Expansionary monetary policy

Question 36

Which of the following is a benefit of using government debt to finance public expenditure?

Accepted Answer

Intergenerational equity

Answer

Higher interest rates

Answer

Reduced economic growth

Answer

Increased inflation

Question 37

Which of the following measures is used to calculate the level of public debt relative to the size of the economy?

Accepted Answer

Debt-to-GDP ratio

Answer

Debt-to-population ratio

Answer

Debt-to-expenditure ratio

Answer

Debt-to-revenue ratio

Question 38

Which of the following is a potential consequence of a high debt-to-GDP ratio?

Accepted Answer

Reduced access to credit

Answer

Higher economic growth

Answer

Lower inflation

Answer

Increased government revenue

Question 39

Which of the following is a risk associated with public debt monetization?

Accepted Answer

Inflation

Answer

Deflation

Answer

Recession

Answer

Reduced economic growth

Question 40

Which of the following is a goal of responsible public debt management?

Accepted Answer

Maintaining economic stability

Answer

Increasing inflation

Answer

Reducing public expenditure

Answer

Maximizing government revenue

Question 41

Which of the following is NOT a method of financing public debt?

Accepted Answer

Printing money

Answer

Private savings

Answer

Borrowing from central banks

Answer

Issuing government bonds

Question 42

Which of the following is a common method used by governments to reduce public debt?

Accepted Answer

Fiscal consolidation (reducing government spending and/or increasing taxes)

Answer

Increasing the money supply

Answer

Printing more money

Question 43

Which of the following is NOT a potential benefit of public debt?

Accepted Answer

It always stimulates economic growth

Answer

It can provide a safe haven for investors

Answer

It can help stabilize the economy during economic downturns

Answer

It can finance public investment in infrastructure and education

Question 44

Which of the following statements about the sustainability of public debt is true?

Accepted Answer

Public debt is sustainable if the ratio of public debt to GDP is stable or declining over time

Answer

Public debt is always unsustainable if it exceeds a certain percentage of GDP

Answer

Public debt is sustainable if the government can always pay interest on its debt

Question 45

What is the primary source of public debt in the United Kingdom?

Accepted Answer

Government borrowing to finance spending exceeding tax revenue.

Answer

Profits from state-owned enterprises.

Answer

Foreign investment in government bonds.

Answer

Savings from households and businesses.

Question 46

Which factor is most important for determining the sustainability of public debt?

Accepted Answer

The government's ability to generate enough revenue to cover debt repayments and interest.

Answer

The rate of inflation in the economy.

Answer

The pace of economic growth.

Answer

Current interest rates on government bonds.

Question 47

How can high levels of public debt negatively impact economic growth?

Accepted Answer

By crowding out private investment as the government competes for available funds.

Answer

By increasing consumer spending through government programs.

Answer

By lowering interest rates, making borrowing cheaper for businesses.

Question 48

Which of these is a primary strategy for reducing public debt?

Accepted Answer

Generating a budget surplus by collecting more tax revenue than spending.

Answer

Raising interest rates to encourage saving and discourage borrowing.

Answer

Lowering interest rates to stimulate economic activity.

Answer

Devaluing the currency to boost exports.

Question 49

What are potential consequences of very high levels of public debt?

Accepted Answer

Increased risk of inflation and currency devaluation due to concerns about government solvency.

Answer

Lower tax rates stimulating economic activity.

Answer

Economic growth and job creation due to increased government spending.

Answer

Increased social welfare spending leading to higher living standards.

Question 50

How can public debt potentially contribute to income inequality?

Accepted Answer

By leading to higher taxes, which can disproportionately impact lower-income households.

Answer

By providing social welfare programs, which benefit lower-income groups.

Answer

By stimulating economic growth, which benefits all income groups equally.

Answer

By lowering interest rates, making borrowing cheaper for everyone.

Question 51

What is the key difference between internal and external public debt?

Accepted Answer

Internal debt is owed to lenders within the country, while external debt is owed to lenders outside the country.

Answer

Internal debt typically carries higher interest rates than external debt.

Answer

Internal debt has shorter maturities than external debt.

Question 52

How can public debt be used to achieve social goals?

Accepted Answer

By funding public investments in infrastructure, education, and healthcare, which can benefit society as a whole.

Answer

By reducing taxes, which increases disposable income for individuals and businesses.

Answer

By lowering interest rates, making it cheaper for individuals and businesses to borrow.