Final answer:
Excessive leverage can lead to larger debt burdens and potential negative cashflow, posing substantial financial risks when economic conditions decline and credit becomes less accessible.
Step-by-step explanation:
The question pertains to the effects of high leverage within an economic context. Leveraging involves the use of borrowed capital (debt) for investment with the aim of increasing the potential return of an investment. However, several risks can materialize if leverage is excessive. One of these risks includes the potential for a larger debt burden, which can ultimately place significant financial strain on an individual or company. Another risk is negative cashflow, where cash outflows exceed the inflows, making it difficult to cover debts. This is particularly problematic when economic conditions worsen, as the access to additional credit may be restricted, and banks may experience asset-liability time mismatches. In such cases, if a bank has loaned money at low interest rates but needs to increase rates it pays to depositors due to rising prevailing rates, it can end up with an unsustainable financial model. Thus, the correct answer to the student's question is 'D. larger debt.'