{"id":92196,"date":"2025-06-01T11:16:49","date_gmt":"2025-06-01T11:16:49","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=92196"},"modified":"2025-06-01T11:16:49","modified_gmt":"2025-06-01T11:16:49","slug":"consider-the-following-statements-statement-i-if-the-united-states","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-statement-i-if-the-united-states\/","title":{"rendered":"Consider the following statements :\nStatement-I :\nIf the United States"},"content":{"rendered":"

Consider the following statements :
\nStatement-I :
\nIf 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.
\nStatement-II :
\nThe USA Government debt is not backed by any hard assets, but only by the faith of the Government.
\nWhich one of the following is correct in respect of the above statements ?<\/p>\n

[amp_mcq option1=”Both Statement-I and Statement-II are correct and Statement-II explains Statement-I” option2=”Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I” option3=”Statement-I is correct, but Statement-II is incorrect” option4=”Statement-I is incorrect, but Statement-II is correct” correct=”option2″]<\/p>\n

\n
\n
This question was previously asked in<\/div>\n
UPSC IAS – 2024<\/div>\n<\/div>\n
Download PDF<\/a>Attempt Online<\/a><\/div>\n<\/div>\n
The correct answer is B, indicating that both statements are correct, but Statement-II does not explain Statement-I.<\/section>\n
Statement-I is correct. If a sovereign nation like the USA defaults on its debt (fails to make scheduled payments on its bonds), the bondholders will not be able to receive the promised payments at the scheduled time. While bondholders may eventually negotiate a resolution (like restructuring or partial payment), their claim to receive payment as originally agreed upon is effectively unenforceable through standard legal means against a sovereign defaulter.
\nStatement-II is correct. US Government debt is backed by the “full faith and credit” of the US government, which essentially means its ability to tax, borrow, and manage its economy, as well as its reputation and willingness to pay. It is not typically backed by specific physical assets like land or gold reserves.
\nWhile both statements are correct, Statement-II (the nature of the backing) does not explain Statement-I (the consequence of default). Default simply means failure to pay, regardless of what backs the debt. The type of backing might influence the severity of the default or the potential for recovery, but it doesn’t explain the fundamental event of non-payment.<\/section>\n
A sovereign default is a serious event with potentially severe consequences for the defaulting country’s economy and reputation, as well as for global financial markets. It can lead to increased borrowing costs, difficulty accessing future credit, and economic instability. The concept of “full faith and credit” is crucial to the stability of government bonds.<\/section>\n","protected":false},"excerpt":{"rendered":"

Consider the following statements : 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 : The USA Government debt is not backed by any hard assets, but only by the faith of … <\/p>\n

Detailed SolutionConsider the following statements :
\nStatement-I :
\nIf the United States<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1092],"tags":[1103,1120,1196],"class_list":["post-92196","post","type-post","status-publish","format-standard","hentry","category-upsc-ias","tag-1103","tag-economic-development","tag-fiscal-policy-revenue","no-featured-image-padding"],"yoast_head":"\nConsider the following statements : Statement-I : If the United States<\/title>\n<meta name=\"description\" content=\"The correct answer is B, indicating that both statements are correct, but Statement-II does not explain Statement-I. Statement-I is correct. If a sovereign nation like the USA defaults on its debt (fails to make scheduled payments on its bonds), the bondholders will not be able to receive the promised payments at the scheduled time. While bondholders may eventually negotiate a resolution (like restructuring or partial payment), their claim to receive payment as originally agreed upon is effectively unenforceable through standard legal means against a sovereign defaulter. Statement-II is correct. US Government debt is backed by the "full faith and credit" of the US government, which essentially means its ability to tax, borrow, and manage its economy, as well as its reputation and willingness to pay. It is not typically backed by specific physical assets like land or gold reserves. While both statements are correct, Statement-II (the nature of the backing) does not explain Statement-I (the consequence of default). Default simply means failure to pay, regardless of what backs the debt. The type of backing might influence the severity of the default or the potential for recovery, but it doesn't explain the fundamental event of non-payment.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-statement-i-if-the-united-states\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Consider the following statements : Statement-I : If the United States\" \/>\n<meta property=\"og:description\" content=\"The correct answer is B, indicating that both statements are correct, but Statement-II does not explain Statement-I. Statement-I is correct. If a sovereign nation like the USA defaults on its debt (fails to make scheduled payments on its bonds), the bondholders will not be able to receive the promised payments at the scheduled time. While bondholders may eventually negotiate a resolution (like restructuring or partial payment), their claim to receive payment as originally agreed upon is effectively unenforceable through standard legal means against a sovereign defaulter. Statement-II is correct. US Government debt is backed by the "full faith and credit" of the US government, which essentially means its ability to tax, borrow, and manage its economy, as well as its reputation and willingness to pay. It is not typically backed by specific physical assets like land or gold reserves. While both statements are correct, Statement-II (the nature of the backing) does not explain Statement-I (the consequence of default). Default simply means failure to pay, regardless of what backs the debt. The type of backing might influence the severity of the default or the potential for recovery, but it doesn't explain the fundamental event of non-payment.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-statement-i-if-the-united-states\/\" \/>\n<meta property=\"og:site_name\" content=\"MCQ and Quiz for Exams\" \/>\n<meta property=\"article:published_time\" content=\"2025-06-01T11:16:49+00:00\" \/>\n<meta name=\"author\" content=\"rawan239\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rawan239\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Consider the following statements : Statement-I : If the United States","description":"The correct answer is B, indicating that both statements are correct, but Statement-II does not explain Statement-I. Statement-I is correct. If a sovereign nation like the USA defaults on its debt (fails to make scheduled payments on its bonds), the bondholders will not be able to receive the promised payments at the scheduled time. While bondholders may eventually negotiate a resolution (like restructuring or partial payment), their claim to receive payment as originally agreed upon is effectively unenforceable through standard legal means against a sovereign defaulter. Statement-II is correct. US Government debt is backed by the \"full faith and credit\" of the US government, which essentially means its ability to tax, borrow, and manage its economy, as well as its reputation and willingness to pay. It is not typically backed by specific physical assets like land or gold reserves. While both statements are correct, Statement-II (the nature of the backing) does not explain Statement-I (the consequence of default). Default simply means failure to pay, regardless of what backs the debt. The type of backing might influence the severity of the default or the potential for recovery, but it doesn't explain the fundamental event of non-payment.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-statement-i-if-the-united-states\/","og_locale":"en_US","og_type":"article","og_title":"Consider the following statements : Statement-I : If the United States","og_description":"The correct answer is B, indicating that both statements are correct, but Statement-II does not explain Statement-I. Statement-I is correct. If a sovereign nation like the USA defaults on its debt (fails to make scheduled payments on its bonds), the bondholders will not be able to receive the promised payments at the scheduled time. While bondholders may eventually negotiate a resolution (like restructuring or partial payment), their claim to receive payment as originally agreed upon is effectively unenforceable through standard legal means against a sovereign defaulter. Statement-II is correct. US Government debt is backed by the \"full faith and credit\" of the US government, which essentially means its ability to tax, borrow, and manage its economy, as well as its reputation and willingness to pay. It is not typically backed by specific physical assets like land or gold reserves. While both statements are correct, Statement-II (the nature of the backing) does not explain Statement-I (the consequence of default). Default simply means failure to pay, regardless of what backs the debt. The type of backing might influence the severity of the default or the potential for recovery, but it doesn't explain the fundamental event of non-payment.","og_url":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-statement-i-if-the-united-states\/","og_site_name":"MCQ and Quiz for Exams","article_published_time":"2025-06-01T11:16:49+00:00","author":"rawan239","twitter_card":"summary_large_image","twitter_misc":{"Written by":"rawan239","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-statement-i-if-the-united-states\/","url":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-statement-i-if-the-united-states\/","name":"Consider the following statements : Statement-I : If the United States","isPartOf":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#website"},"datePublished":"2025-06-01T11:16:49+00:00","dateModified":"2025-06-01T11:16:49+00:00","author":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209"},"description":"The correct answer is B, indicating that both statements are correct, but Statement-II does not explain Statement-I. 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