Unit 3 · Level 2 · Government debt & fiscal policy
Unit review: debt
Recap: deficits are flows, debt is the stock they build. Governments borrow from voluntary lenders who can, and do, say no, as the UK learned in 2022. When interest outruns growth, spirals form, and they end in default, restructuring or austerity. And behind it all, two levers: the government's wallet and the central bank's dial, not always pulling the same way.
Free to play. No ads, no token, no account needed to start.
What you get asked
The deficit is a flow; the debt is a ___.
This year's borrowing versus the accumulated pile. Cut the deficit in half and the debt still grows, just more slowly.
Why did pension funds AMPLIFY the UK's 2022 gilt crisis?
Their leveraged hedging strategies required posting cash as gilts fell, which they raised by selling more gilts, pushing prices down further. Forced sellers turn a selloff into a spiral.
Match each debt concept to its meaning
Four terms that turn scary debt headlines into readable stories. Spot which one is playing out and you're ahead of most commentary.
Which country is the textbook example of repeat sovereign default?
Roughly nine defaults, most recently 2020. Each one raises the price of the next loan. Credit history works the same for countries as for people.
What ultimately keeps a government's borrowing sustainable?
Grow faster than your interest compounds and stay trusted enough to refinance cheaply: that's the whole game. Lose either leg and the bond market comes calling. 🐜
The rest of this unit
Deficits, bond markets, and the day investors say no.