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Suppose a country is projecting a deficit of $20 million next year. Which of the following events would add most to the debt?
an increase in the deficit of $500,000
a 3% rise in the interest rate
an increase in tax revenues of $600,000
all of the above would increase the debt by the same amount
A 3% increase in the interest rate would add $600,000 to the deficit and thus to the debt. This exceeds a $500,000 increase in the deficit, while tax revenues would decrease, not increase, the debt.
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