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The assignment requires collecting recent economic data for Japan, USA, India, Italy, Iraq, and Mexico, specifically focusing on per capita GDP and government debt-to-GDP ratios. Based on this data, the task is to analyze whether debt poses a problem primarily for economically advanced countries, developing countries, or both, and to justify this perspective. Additionally, the assignment explores the implications of the United States' impeccable debt repayment history, suggesting that the US likely benefits from lower borrowing costs due to perceived low risk, whereas Iraq, with a fragile economy, probably faces higher interest rates. The concept of “crowding out”—where increased government borrowing potentially limits private sector investment—is also to be explained. Finally, the student must evaluate which country experiences the most extensive crowding out based on the data collected.

Paper For Above instruction

Economic debt levels significantly influence both developed and developing nations, but their implications differ based on their economic stability and capacity to manage debt. Data from recent sources, such as the World Bank and IMF, indicate that advanced economies like the United States and Japan hold high per capita GDPs and also have substantial debt-to-GDP ratios. For example, Japan’s debt-to-GDP ratio exceeds 200%, yet its economy continues to grow, and its debt levels are manageable due to high domestic savings and low interest rates (OECD, 2022). Similarly, the United States displays a high debt-to-GDP ratio—around 125%—but benefits from a mature financial system and the US dollar's reserve currency status, enabling it to borrow at relatively low interest rates (Federal Reserve, 2023). In contrast, developing countries like India and Mexico tend to have lower per capita GDPs and debt ratios; however, their burgeoning economies can be constrained by rising debt levels, which may threaten sustainability if borrowing costs rise or economic growth slows (IMF, 2022). Countries like Iraq, with weaker economic indicators and unstable political environments, generally face higher borrowing costs, as lenders perceive increased risk, which can hinder development efforts. Consequently, debt is a problem faced by both advanced and developing economies, but the severity and consequences vary depending on economic context and management of debt levels.

The US’s consistent repayment record contributes significantly to its ability to access funds at low interest rates, reflecting its perceived creditworthiness. According to risk and return principles, lenders interpret the US’s history of repayment as a low-risk scenario, thereby offering borrowing at favorable terms, often below global average interest rates (Borio & Disyatat, 2020). Conversely, Iraq’s fragile economy, with ongoing conflict and political instability, signals elevated risk to lenders, compelling them to demand higher risk premiums and interest rates to compensate for potential default. This disparity illustrates how risk perceptions influence borrowing costs and access to credit. The concept of “crowding out” refers to a scenario where increased government borrowing raises interest rates, making borrowing more expensive for private firms and individuals, which can reduce private investment (Mankiw, 2021). Given the collected data, countries with high government debt levels—such as Japan or the US—are likely experiencing more crowding out, particularly if their governments finance increased borrowing through attracting additional debt, which elevates interest rates. Therefore, the country with the highest government debt-to-GDP ratio and borrowing needs likely faces the most extensive crowding out, hindering private sector growth and investment.

References

• Borio, C., & Disyatat, P. (2020). The Role of the Financial System in Economic Growth. BIS Working Papers.
• Federal Reserve. (2023). Financial Stability Report. Federal Reserve Bank.
• IMF. (2022). World Economic Outlook. International Monetary Fund.
• Mankiw, N. G. (2021). Principles of Economics (9th ed.). Cengage Learning.
• OECD. (2022). Economic Outlook. Organisation for Economic Co-operation and Development.