A country is said to be a debt trap if:
✓ Correct answer: a) it has to borrow to make interest payments on outstanding loans
ExplanationA debt trap occurs when a country borrows addi- tional funds to pay interest on existing loans, leading to an escalating debt burden and difficulty repaying the princi- pal.This cycle results in persistent borrowing, increased fiscal deficits, and potential economic instability.Central banks and governments use interest rate policies to manage inflation and economic growth.However, if the money supply grows slower than the required funds for servicing debt, the country must rely on additional borrowing, worsening the debt situation.When a country must borrow to pay interest on its outstanding loans, it is caught in a vicious cycle of debt.This situation arises when the existing revenue streams are insufficient to cover the debt ser- vicing costs, forcing the government to take on additional debt.Option (b) is incorrect : While IMF conditionalities aim to sta- bilize the economy, they do not define a debt trap.Option (c) is incorrect : Being refused loans or aid may indicate financial distress but does not define a debt trap.Option (d) is incorrect : High interest rates can ex
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