Question

Unchecked debt growth could eventually lead to a fiscal crisis, as recently occurred across Europe. At that point, investors in U.S. debt will demand higher returns, driving up interest payments, and leading to a debt situation spiraling out of control.

a. true
b. false

Answer 1

Unchecked debt growth can lead to a fiscal crisis when a country's debt to GDP ratio rises. This can create uncertainty in financial and global markets, prompting a country to resort to inflationary tactics to reduce the real value of the debt.

Step-by-step explanation:

Unchecked debt growth could eventually lead to a fiscal crisis, as seen in recent events across Europe. When a country's debt to GDP ratio rises, it creates uncertainty in the financial and global markets. This uncertainty may cause a country to resort to inflationary tactics to reduce the real value of the debt, which can decrease real wealth and damage confidence in the country's ability to manage its spending.