Unit 3 → Subtopic 3.7
How Does the National Debt Affect the Economy?
National debt is a key issue in macroeconomics, influencing a country's economic stability, inflation rates, interest rates, and overall financial health. Governments borrow money to finance public spending, infrastructure projects, and economic stimulus programs, but excessive debt can lead to economic instability, reduced investor confidence, and long-term fiscal challenges. This project challenges students to investigate how national debt impacts economic growth, public spending, and government decision-making.
Students will begin by exploring why governments accumulate debt and the methods they use to finance it, such as issuing bonds, borrowing from international organizations, and printing money. They should examine the difference between internal debt (money borrowed from domestic sources) and external debt (loans from foreign entities or institutions such as the International Monetary Fund or World Bank).
A major focus of this project is assessing the economic consequences of high national debt. While borrowing can stimulate economic growth during recessions, excessive debt levels can lead to inflation, higher interest rates, and reduced public investment in critical sectors like education and healthcare. Students should research examples of countries that successfully managed national debt, such as Germany and Canada, versus those that have struggled with debt crises, such as Greece and Argentina.
Another critical aspect of this project is analyzing how governments attempt to reduce debt through strategies like spending cuts, tax increases, and economic growth initiatives. Students should explore whether these approaches are effective or if they create further economic and social challenges, such as reduced social welfare benefits, public sector job losses, or slower long-term growth.
The final report should assess whether national debt is always a problem or if it can be a useful tool for economic management when properly controlled. The goal of this project is to help students understand the complex relationship between government debt, economic policy, and long-term financial sustainability.
Recommended Procedure:
Research How National Debt Is Accumulated – Explore how governments finance spending through borrowing, and analyze the role of bonds, international loans, and central bank policies in managing debt levels.
Examine the Short-Term and Long-Term Impacts of National Debt – Investigate how high debt levels affect inflation, interest rates, government spending, and economic growth.
Analyze Case Studies of National Debt Crises – Study examples like Greece’s debt crisis, Japan’s high debt-to-GDP ratio, and the U.S. federal debt to understand the consequences of excessive borrowing.
Evaluate Different Approaches to Managing National Debt – Compare strategies such as austerity measures, tax increases, monetary expansion, and debt restructuring to assess their effectiveness in stabilizing economies.
Write an Analysis on the Sustainability of National Debt – Assess whether debt is a long-term problem or a necessary tool for economic expansion, and discuss policies to prevent debt from harming national economies.
Suggested Sources:
Understanding National Debt and Economic Borrowing:
Investopedia: What National Debt Means for Economies – https://www.investopedia.com
Khan Academy: Government Debt and Deficits – https://www.khanacademy.org
2. Case Studies on National Debt and Its Consequences:
The Balance: Why Some Countries Struggle With High Debt – https://www.thebalancemoney.com
Harvard Business Review: The Global Implications of Rising National Debt – https://hbr.org
3. Debt Management and Fiscal Responsibility:
World Bank: How Governments Reduce Debt While Maintaining Growth – https://www.worldbank.org
OECD: The Role of Fiscal Policy in Preventing Debt Crises – https://www.oecd.org
4. The Future of National Debt and Economic Stability:
IMF: Sustainable Debt Management Strategies – https://www.imf.org
United Nations: Long-Term Economic Impacts of National Debt – https://www.un.org
Grading Rubric:
Total Points: __ /20
