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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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