Higher risk of default and higher government revenues

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Reference no: EM131102154

If debt accumulates too fast and investors start to worry about [higher risk of default/ higher government revenues/ reduced risk of default], we can suppose that the [price of the government’s bonds/ the effective real interest rate paid to bondholders] will fall and the effective real interest rate paid to bondholders will [rise/fall]. Of course, if a country must pay a [higher/lower] effective real interest rate paid to bondholders when it issues new debt, that will lead to [an increase/a decrease] in the cost of [private investment/ government investment/ private borrowing/ government borrowing]. The consequence could be [an increase/ a decrease] in the government deficit.

Reference no: EM131102154

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