Why is a large government debt-to-GDP ratio likely to lead to a fall in a country’s economic growth?
- AHigher taxes to pay the interest charges on the debt will reduce the country’s money supply.
- BIt will cause the growth in actual output to fall behind the country’s long-term rate of growth.
- CIt will increase the cost of borrowing to both the government and the private sector.
- DIt will weaken the country’s competitiveness by increasing unit labour costs.