{"id":2416,"date":"2025-05-01T19:52:59","date_gmt":"2025-05-01T14:22:59","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=2416"},"modified":"2025-05-01T19:57:41","modified_gmt":"2025-05-01T14:27:41","slug":"q-consider-the-following-statements-139","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-consider-the-following-statements-139","title":{"rendered":"Q. Consider the following statements:"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><strong>Statement-I<\/strong>: If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be able to exercise their claims to receive payment.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Statement-II:<\/strong>&nbsp;The USA Government debt is not backed by any hard assets, but only by the faith of the Government.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Which one of the following is correct in respect of the above statements?<\/p>\n\n\n\n<ul class=\"wp-block-list mcq\">\n<li>Both Statement-1 and Statement-II are correct and Statement-II explains Statement-I<\/li>\n\n\n\n<li>Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I<\/li>\n\n\n\n<li>Statement-I is correct, but Statement-II is incorrect<\/li>\n\n\n\n<li>Statement-I is incorrect, but Statement-II is correct<\/li>\n<\/ul>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Answer: (a) Both Statement-1 and Statement-II are correct and Statement-II explains Statement-I<\/strong><\/p>\n<\/blockquote>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"notes\">Notes:<\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li>In the\u00a0<strong>event of a default<\/strong>, the U.S. government would fail to meet its debt obligations.\n<ul class=\"wp-block-list\">\n<li><strong>Holders of U.S. Treasury bonds<\/strong>\u00a0have claims on the government to be paid principal and interest.<\/li>\n\n\n\n<li>However,<strong>\u00a0in the event of a default, they might not be able to exercise these claims immediately,\u00a0<\/strong>since the\u00a0<strong>government wouldn\u2019t have the funds<\/strong>\u00a0to meet its obligations,\u00a0<strong>leading to bondholders being denied<\/strong>\u00a0their claims.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>U.S. government debt<\/strong>\u00a0(like U.S. Treasury bonds) is\u00a0<strong>not directly backed by hard assets like gold or real estate.<\/strong>\n<ul class=\"wp-block-list\">\n<li>Instead,\u00a0<strong>it is backed by the \u201cfull faith and credit\u201d<\/strong>\u00a0of the\u00a0<strong>U.S. government<\/strong>.<\/li>\n\n\n\n<li>This means the<strong>\u00a0U.S. government promises to repay the debt based on its ability to tax, borrow, and print money<\/strong>.<\/li>\n\n\n\n<li>It is true that there are\u00a0<strong>no hard assets backing this debt<\/strong>\u2014just the government\u2019s ability to generate revenue.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Statement-II highlights\u00a0<\/strong>that U.S.\u00a0<strong>government debt is not backed by any tangible collateral\u00a0<\/strong>(like gold reserves or assets)<strong>\u00a0but rather by trust in the government\u2019s financial system<\/strong>.\n<ul class=\"wp-block-list\">\n<li>Since\u00a0<strong>there is no collateral to fall back on<\/strong>, the debt\u00a0<strong>relies solely on the government\u2019s ability to repay,<\/strong>\u00a0and\u00a0<strong>if that ability collapses<\/strong>\u00a0(as it would in a default),\u00a0<strong>bondholders are left without any physical recourse for repayment.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Statement-I: If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be able to exercise their claims to receive payment. Statement-II:&nbsp;The USA Government debt is not backed by any hard assets, but only by the faith of the Government. Which one of the following is&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[49],"class_list":["post-2416","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-49"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":49,"label":"2024"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/2416","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=2416"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/2416\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=2416"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=2416"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=2416"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=2416"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}