Why does the author call the comparison with a household overdraft misleading?

Public debt is often discussed as if it were a household's overdraft, but the comparison is misleading. A household must eventually repay what it borrows, while a state can roll its debt over indefinitely as long as lenders trust it. What matters is the size of the debt relative to the economy and the interest rate the state pays. If the economy grows faster than the interest rate, the debt can shrink as a share of national income even without repayment. Critics reply that the condition cannot be relied on: rates can rise suddenly, and heavy borrowing today may force painful cuts tomorrow. The debate is therefore less about whether debt is good or bad than about how much risk a society is willing to accept.

Answer and explanation

Correct answer: A. A state can roll over its debt, but a household must repay

  1. Step 1: The passage contrasts the two cases. Step 2. The key difference is that a state can renew its borrowing. Answer: a state can roll over its debt. Why not the others: these claims are not made.

Practise more Passages and Logical Reasoning.

Free questions with an explanation for every one, and full timed Sciences Po and Grandes Ecoles Entrance Practice mock tests.

All Passages and Logical Reasoning questionsTake a mock test

More Passages and Logical Reasoning questions