Question

Statement (1): Interest rates are higher for public debt.

Statement (2): Interest rates are lower for private debt.

Options

•  Both statements are true.

• Both statements are false.

• Statement 1 is true but Statement 2 is false.

• Statement 2 is true but Statement 1 is false.

Answer 1

Both statements are false.

Explanation:

• Statement (1): This statement is false because the government is the most secure borrower in an economy, allowing it to issue public debt at much a lower interest rate.
• Statement (2): This statement is false because private borrowers have a significantly higher risk of default, requiring commercial banks and investors to charge them higher interest rates.