Household indebtedness, which some theorists regard as causing recessi
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08 Apr 2024, 05:04
Understanding the argument -
Household indebtedness, which some theorists regard as causing a recession, was high preceding the recent recession, but so was the value of assets owned by households. - Background. Most importantly, when the author says, "which some theorists regard as causing recession," we should expect the alternative view. And "but" presents the first such objection to the views of these "some theorists."
Admittedly, if most of the assets were owned by quite affluent households, and most of the debt was owed by low-income households, high household debt levels could have been the cause of the recession despite high asset values: low-income households might have decreased spending in order to pay off debts while the quite affluent ones might simply have failed to increase spending. - The author explains that had some theorist's "belief" been true, what would the reasoning have looked like?
But, in fact, quite affluent people must have owed most of the household debt since money is not lent to those without assets. - " But" introduces the contrast. It shares 180 degrees of opposite observation. As against "some theorists" based on whom most lower-income households could have opened this debt, this statement states the other way around. It's the affluent households who own most of this debt. What is the reason for this?
Therefore, the real cause must lie elsewhere. - Conclusion. Why must it lie somewhere else? Because even if most of the affluent households held most of the debt, there is no evidence that they decreased spending. As the argument goes, they may have failed to increase spending. Even if they keep spending the same, household indebtedness is the unlikely cause of recession. There needs to be an alternate reason for the recession.
The argument is structured to lead to which one of the following conclusions?
Option Elimination -
(A) High levels of household debt did not cause the recent recession. - ok
(B) Low-income households succeeded in paying off their debts despite the recent recession. - opposite.
(C) Affluent people probably increased their spending levels during the recent recession. - opposite to the statement mentioned in the argument, "the quite affluent ones might simply have failed to increase spending."
(D) High levels of household debt have little impact on the economy. - Not implied. The author just states that in this situation household indebtedness is not the cause of recession. Out of scope.
(E) When people borrowed money prior to the recent recession, they did not use it to purchase assets. - We don't know what they spent it on. Out of scope.