In a 2023 report to Congress, the CBO stated: High and rising debt would have significant economic and financial consequences. It would, among other things, slow economic growth, drive up interest payments to foreign holders of U.S. debt, elevate the risk of a fiscal crisis . . . and make the nation’s fiscal position more vulnerable to an increase in interest rates. In addition, it could cause lawmakers to feel more constrained in their policy choices.

a. Do the causes of federal budget deficits in the long run sometimes differ from the causes in the short run? Briefly explain.

b. How might debt that is increasing as a percentage of GDP slow economic growth?

c. What does the CBO mean by a “fiscal crisis”? Can the federal government ever be in a situation where it is unable to make the interest payments on its debt? If not, how is it possible for debt to lead to a fiscal crisis?

d. What does the CBO mean by high and rising debt constraining the policy choices facing lawmakers?