allery'Debt-trap' refers to a situation where
Aborrowed money cannot be repaid, leading to fresh debt to service old debt
Ba household has no debt at all
Cinterest rates are zero
Dbanks refuse to lend
Answer & Solution
Correct answer: A. borrowed money cannot be repaid, leading to fresh debt to service old debt
1. Debt-trap: inability to repay a loan forces fresh borrowing.
2. New loans go toward servicing old debt rather than productive use.
3. High-interest informal lenders are notorious for trapping borrowers this way.
_Source: syllabus Understanding Economic Development, Ch 3 "Money and Credit"_
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