Question

1. Before addressing the following questions, you will first need to collect some data! Use online websites (such as Wikipedia) to find economic data for Japan, USA, India, Italy, Iraq, and Mexico. Specifically, find recent data for per capita GDP and government debt-to-GDP ratio.

2. Based on the data collected, do you think that debt is a problem faced by economically advanced countries, undeveloped countries, or both? Justify your answer.

3. The United States government has a 100% repayment rate—it has always repaid its debt. Given what we know about risk and return, do you think the USA is generally charged high or low interest rates on borrowing money? Similarly, do you think Iraq (a poor and economically unstable country) is likely to pay high or low interest rates on loans?

4. Explain the concept of “crowding out”. Based on the data collected, which of these countries likely has the most extensive “crowding out”? Explain.

Answer 1

Answer:

Economic data for japan, USA, India, Italy, Iraq, and Maxico. recent data for per capita GDP and government debt-to-GDP ratio

	Per capita GDP	Debt to GDP
Japan	$42800	238.4%
U.S.A	$59600	106%
Italy	$38100	134.8%
Iraq	$17000	48.4%
Mexico	$19900	46%
India	$7200	68.3%

a)

Debt is very high in developed countries when compared with developing countries.

Developing countries had advantage of lower-cost and wage and access to capital for developing countries was also very-limited.

So, clearly they have lower debt compared to developed countries.

b)

united states is the single largest borrower in the world, its economy has no parallel

So, the trust in united states government is very high compared to developing countries up-predictable governments.

further U.S. bonds are always on high demand even if they donot offer high interest rates.

Usually government securities are bought for safety, so many foreign government buy trillions of bonds from U.S.A.

c)

clearly U.S.A has the crowding effect, they had hudge public, spending and this has made expansion very difficult, Billions of dollars of public work has taken up resulting in crowding effect.

Japan clearly is in lead when considering crowding effect, its public spending is very high, its infrastructure, costs etc. are some of the most expansive in world.

Italy on other hand bad limited crowding effect but they too had spent billion after the financial crisis of 2008, crowding did happen there

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