Final answer:
Public debt can be caused by factors such as governments borrowing money for public services, political and economic factors, and changes in investor confidence. Foreign investors' perceptions of a country's public debt can also impact financial markets.
Step-by-step explanation:
Public debt is caused by various factors. One major cause is when a government needs to borrow money to pay for public services due to the lack of revenue. This can happen even in countries with a large number of wealthy citizens or a growing economy. Another cause can be attributed to political and economic factors, such as tax cuts and increased international borrowing. For example, the 2008 financial crisis had its roots in George W. Bush-era tax cuts and increased borrowing. A nation's debt can also be affected by external influences, such as changes in investor confidence or unforeseen events causing economic collapse. For instance, if foreign investors view a country's economy as less desirable due to the growth of the public debt, it can lead to a decline in investment and affect the equilibrium price and quantity for capital in financial markets.