How did changes in world interest rates contribute to the ...

[lbcchick]

How did changes in world interest rates contribute to the explosion of debt in the 1970s? What happened in the early 1980s to reverse this?
 
  What will be an ideal response?

Question 2

Which of the following was not a factor contributing to the debt crisis in Latin America?
 
  (a) The oil shocks.
  (b) Trade liberalization in many developing countries.
  (c) An increase in global interest rates.
  (d) A lack of investment opportunities in the developed countries.
  (e) All of the above.

[ngr69]

Answer to Question 1

Rising inflation in the 1970s led to falling real interest rates, spurring borrowing by many developing-country governments. Higher nominal rates and lower inflation in the early 1980s reversed the situation, making continued borrowing more expensive.

Answer to Question 2

B