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Chapter 30: Problem 8

Debt has a certain self-reinforcing quality to it. There is one category of government spending that automatically increases along with the federal debt. What is it?

Short Answer

Expert verified
The category of government spending that automatically increases along with the federal debt is the interest payments on the outstanding debt.

Step by step solution

01

Define Federal Debt and Government Spending

Federal debt is the amount a government owes, while government spending refers to the total expenses a government incurs. A self-reinforcing quality refers to the fact that as federal debt increases, certain government spending categories will also automatically increase.
02

Identify the Connection

When the federal debt increases, it means that the government is borrowing more money to finance its expenses. As a result, the cost of borrowing, or the interest payments on the outstanding debt, also increases.
03

Determine the Category of Government Spending

Now, we know that the interest payments on outstanding debt increase as the federal debt grows. Therefore, the category of government spending we are looking for is interest payments on the federal debt. This spending category has a self-reinforcing quality, as it automatically increases along with the federal debt.
04

Final Answer

The category of government spending that automatically increases along with the federal debt is the interest payments on the outstanding debt.

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Most popular questions from this chapter

Excise taxes on tobacco and alcohol and state sales taxes are often criticized for being regressive. Although everyone pays the same rate regardless of income, why might this be so?

In a booming economy, is the federal government more likely to run surpluses or deficits? What are the various factors at play?

Economist Arthur Laffer famously pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Why might this be the case?

What is a potential problem with a temporary tax increase designed to increase aggregate demand if people know that it is temporary?

Why are expenditures such as crime prevention and education typically done at the state and local level rather than at the federal level?
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