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Methods of Stabilising Public Debt

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therobbdj's version from 2015-05-14 07:46

Section

Question Answer
Fiscal stringencyAusterity measures are implemented and saving is discouraged. This should help to reduce government expenditure within the economy
Repudiate the debtThe debt could be written-off, reducing the 'exponential' nature of debt
Inflationary financeBy stimulating inflation within the economy,the real value of the interest repayable will fall as the real interest falls according to the Fisher ex-post equation, reducing the primary surplus required to stabilise the debt
Interest rate reliefThe interest rate payable on the loan could be lowered if the country asks for it, reducing the rate of interest payable on the debt and reducing the primary surplus required to stabilise the debt
Stimulate real GDP growthBy stimulating growth, the real value of the interest repayable on the debt will fall, thereby reducing the budget surplus necessary to stabilise the debt
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