Economics · Macroeconomics

Choose the statement that correctly defines the concept of a 'debt trap' for an economy.

Verified Solution4 OptionsUpdated: October 2026👁️1 View

1A situation when an economy's foreign exchange reserve growth rate exceeds the growth rate of its external borrowings.
2A situation where an economy's revenue growth perfectly matches its external debt obligations.
3A situation where an economy has to borrow more funds just to repay or service its past borrowings.✓
4A condition where an economy borrows solely to finance new capital investments.

Correct answer

A situation where an economy has to borrow more funds just to repay or service its past borrowings.

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