Given very low interest rates now, can governments afford to substantially increase fiscal deficits and
government debt?
Explain the link between government deficits and debt in the context of the government's inter-temporal
budget constraint. Give reasons for whether or not government debt is too high. That is, does it have high
future costs to the economy, such as crowding out investment and lowering future income, and risking a
future crisis or even hyperinflation? Relate this to whether the economy's growth rate will remain higher
than the interest rate. Will new technologies produce enough real growth to overcome any negative
effects of more government debt?