Answer to Question #323273 in Economics of Enterprise for Awwad

Question

4. Assume that a household has access to credit. Which of the following is likely to have a significant effect on long-run consumption?

Answer 1

In the United States, the housing market collapsed., wreaking havoc on household budgets. The drop in property prices contributed to a massive drop in homeowners' net worth, but it also left many of those who had borrowed heavily during the credit bubble extremely leveraged, meaning they had very high debt levels compared to the value of their assets. Analysts frequently claim that this "debt overhang" necessitated household deleveraging, which has stifled consumer spending and slowed the economy's recovery.