Which consequence can happen when a nation has a large federal debt? a. The federal government may stop - brainly.com (2024)

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Which consequence can happen when a nation has a large federal debt? a. The federal government may stop - brainly.com? ›

Therefore, the correct option is d: "The federal government may be unable to fully fund all its programs." When a nation has a large federal debt, it may lead to significant fiscal constraints. One notable consequence is that the federal government may be unable to fully fund all of its programs.

A nation saddled with debt will have less to invest in its own future. Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar.

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One of the consequences that can happen when a nation has a large federal debt is that the federal government may be unable to fully find all its programs.

A budget deficit can lead to higher levels of borrowing, higher interest payments, and low reinvestment, which will result in lower revenue during the following year.

Decreased savings and income

The government's need to borrow will eventually exceed the savings available, and even though more households and businesses are purchasing treasury securities, national savings will reach a low point in comparison to the size of the federal debt.

As we have discussed elsewhere, government debt reduces economic activity by crowding out private capital formation and by requiring future tax increases or spending cuts to accommodate future interest payments.

At high debt levels, governments have less capacity to provide support for ailing banks, and if they do, sovereign borrowing costs may rise further. At the same time, the more banks hold of their countries' sovereign debt, the more exposed their balance sheet is to the sovereign's fiscal fragility.

Reduced Public Investment.

As the federal debt mounts, the government will spend more of its budget on interest costs, increasingly crowding out public investments. Over the next 10 years, the Congressional Budget Office (CBO) estimates that interest costs will total $12.4 trillion under current law.

When there is an existence of a large national debt, it will affect government spending in the future. Future spending will fall. Since a government must pay interest on its accumulated debt, this means that the government will not have those funds for alternative uses.

Higher interest rates caused by expanding government debt can reduce investment, inhibit interest-sensitive durable consumption expenditure, and decrease the value of assets held by households, thus indirectly dampening consumption expen- diture through a wealth effect.

What are the effects of a large government budget deficit on economic growth? ›

Key Takeaways. A government runs a fiscal deficit when it spends more than it takes in from taxes and other revenues. An increase in the fiscal deficit can boost a sluggish economy by giving individuals more money to buy and invest more. Long-term deficits can be detrimental to economic growth and stability.

The ramifications of a chronic budget deficit can be significant. To fund the gap between spending and revenue, the government borrows money, influencing the overall economy. Notably, it impacts interest rates, influencing consumers' and businesses' behavior.

When the government runs a deficit, the debt increases; when the government runs a surplus, the debt shrinks. Three measures of the debt are: Debt held by the public measures the government's borrowing from the private sector (including banks and investors) and foreign governments.

The U.S. national debt has soared to historic levels relative to the size of the U.S. economy. Many economists say that a rapidly mounting debt load could soon diminish U.S. economic growth, restrict government spending on important programs, and raise the likelihood of financial crises.

The higher the debt-to-GDP ratio, the less likely the country will pay back its debt and the higher its risk of default, which could cause a financial panic in the domestic and international markets.

Debt rises when the U.S. spends more than it earns from taxes and other revenue. The public debt results from tax and spending policies that commonly garner public support, but individuals often worry about how the national debt affects their lives and finances.

When the government borrows huge amounts of money, it "crowds out" other borrowers by taking such a big chunk of loanable funds. This raises interest rates for other borrowers and makes loanable funds harder to get.