A/A* Guarantee

7 Day Money-Back

Home > Economics FAQs Blogs > What are the potential impacts of a large national debt?

What are the potential impacts of a large national debt?

Relevant Topics

This question pertains to topics in Macroeconomics, such as National Debt, Fiscal Policy, Economic Growth, Inflation


National Debt: The total amount of money that a country's government has borrowed, by various means.

Detailed Explanation:

A large national debt can have several impacts on a country's economy:

Crowding-Out Effect: A high level of government borrowing can lead to a 'crowding-out' effect where government borrowing pushes up interest rates, thereby deterring private sector investment.

Higher Taxes: In order to service its debt, the government may have to raise taxes which can lower disposable income and dampen consumer spending, slowing economic growth.

Inflationary Pressure: If a country finances debt by printing money, it can lead to inflationary pressure as more money chases after the same amount of goods and services.

Reduced Fiscal Space: A large national debt can limit a government's ability to increase spending during economic downturns or to fund public services.


Japan: Japan has a very high level of national debt, surpassing 200% of its GDP. Despite this, it has managed to keep interest rates low because a large portion of its debt is owned domestically. However, the high debt limits fiscal space for new policy initiatives.

: The 2009 Greek debt crisis was a clear example of how excessive national debt can destabilize an economy. It led to austerity measures, high unemployment, and slow economic growth, and required a bailout from the International Monetary Fund and the European Union.


In conclusion, a large national debt can have several potential impacts including a crowding-out effect on investment, higher taxes, inflationary pressure, and reduced fiscal space. It's important to note, though, that the impacts depend on factors like who holds the debt and the overall economic condition of the country. Real-world examples like Japan and Greece demonstrate the varied effects of high national debt.

Whenever you're ready there is one way I can help you.

If you or your child are looking to Boost your A level Economics Grades in under 30 days, I'd recommend starting with an all-in-one support network where you get 24/7 access to a SuperTutor:

Join EdGenie 🧞‍♂️: Transform your A-Level Economics essays and exam marks (genuinely) with our comprehensive on-demand learning platform. This carefully curated course blends engaging content with effective exam techniques, the same ones that have empowered over 1,000 of my students to achieve an A or A* over the last 13 years. 
Thanks for hopping on board EdGenie's Frequently Asked Questions! 
I'm Emre, and I've got a big goal - to make A* education accessible to all A-level students.
And it Starts With You!

Emre Aksahin
Chief Learning Officer at Edgenie