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Questions 10-11 Household indebtedness, which some theorists [#permalink]
19 Jun 2005, 19:13
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Household indebtedness, which some theorists regard as causing recession, was high preceding the recent recession, but so was the value of assets owned by households. 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. But, in fact, quite affluent people must have owed most of the household debt, since money is not lent to those without assets. Therefore, the real cause must lie elsewhere.
10. The argument is structured to lead to which one of the following conclusions?
(A) High levels of household debt did not cause the recent recession.
(B) Low-income households succeeded in paying off their debts despite the recent recession.
(C) Affluent people probably increased their spending levels during the recent recession.
(D) High levels of household debt have little impact on the economy.
(E) When people borrowed money prior to the recent recession, they did not use it to purchase assets.
11. Which one of the following, if true, casts the most doubt on the argument?
(A) Prior to the recent recession, middle-income households owed enough debt that they had begun to decrease spending.
(B) The total value of the economyâ€™s household debt is exceeded by the total value of assets held by households.
(C) Low-income households somewhat decreased their spending during the recent recession.
(D) During a recession the affluent usually borrow money only in order to purchase assets.
(E) Household debt is the category of debt least likely to affect the economy.
for 11,I think B address the root cause, it says asset value was not as high as debt, therefore...people had to pay the diff of debt-asset, thus reducing spendable income...thus reducing demand, thus causing recession....