How can government debt impact the economy?

High government debt can lead to higher interest rates and reduce private investment due to various economic mechanisms. When a government borrows extensively, it competes with private borrowers for available funds in the financial markets. This competition can drive up interest rates, as lenders demand a higher return for the increased risk of being lent to an already indebted government.

As interest rates rise, the cost of borrowing for businesses increases, which can deter them from investing in new projects or expansion. Private investment is crucial for economic growth, as it leads to more jobs, innovation, and productivity. Therefore, when government debt is high and leads to increased interest rates, it can crowd out private investment, slowing overall economic growth and potentially leading to less favorable outcomes for the economy as a whole.

The other options do not capture this dynamic. For instance, the idea that government debt leads to lower interest rates and increased investment contradicts the observed effects of high debt levels. Claiming that government debt has no significant impact on economic growth overlooks the critical relationship between government borrowing, interest rates, and private investment. Lastly, asserting that it primarily affects public sector jobs misses a vital part of the conversation around private sector investment and overall economic health.