Question
Hello , I need respond for this answer . A struggling economy is not producing like a strong economy: there is less investment, less job
Hello , I need respond for this answer .
A struggling economy is not producing like a strong economy: there is less investment, less job creation, stagnant wages, perhaps increasing unemployment. For the government debt, the lower interest rates mean that the government does not have to pay out as much in interest payments to the holders of the debt. This means the debt is "cheaper" than the same debt at a higher interest rate. This might lead you to think that this means that it can be paid off faster. However, if the economy is struggling then the tax base is likely smaller, which means that the government will take in less money in tax revenues. Depending on the change in tax revenues, this could lead to the need for even more borrowing.
In thinking about this, do government bonds act like "normal" bonds in that they have an inverse relationship between price of the bond and interest rate? If so, then low interest rates would make the bond debt increase?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started