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Consider a country that is in danger of high debt due to excessive borrowings arising from expansionary scal measures to address the adverse effects of
Consider a country that is in danger of high debt due to excessive borrowings arising from expansionary scal measures to address the adverse effects of the COVID- 19 pandemic. As nancial investors begin to worry that the government of this country will be unable to pay its debts, interest rate increases. A. What should the government do to increase its credibility and lower the debt over time and thus, avoid the possible effects of the increase in interest? Discuss your answer. (10 points) B. Discuss the possible consequences if the government of this country is unable to raise the primary surplus. [5 points}
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