According to the Greece case, what contributed to Greece's debt?

• A. Government borrowing to fund retirement benefits and underinvestment in infrastructure
• B. High interest rates demanded by investors
• C. Rapid export growth
• D. A growth in public sector wages

Answer: (C)

The main idea here is understanding what drives a country’s debt over time. In the Greece case, the debt grew largely because the government borrowed to fund retirement benefits and because infrastructure investment lagged behind, dampening growth and future revenue. A pay-as-you-go pension system, combined with an aging population, creates rising future obligations; financing these obligations with more borrowing pushes the debt up rather than down.

Rapid export growth would typically help, since it expands the economy and strengthens the tax base, making it easier to service debt. So it wouldn’t contribute to accumulating debt. Higher interest rates or rising public-sector wages can worsen deficits or increase debt servicing, but they don’t capture the primary, long-term driver highlighted in the Greece case: structural deficits tied to pension liabilities and underinvestment in growth-promoting infrastructure.