Household indebtedness, which some theorists regard as causing recessi

According to me the other cause for high level household indebtness was both middle income households and low income households spending less money and thatswhy option A is correct.

Indeed the question is difficult.Kindly correct me if I am wrong.I would appreciate it.

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(D) During a recession the affluent usually borrow money only in order to purchase assets.

(D) is incorrect because it talks about the behavior of the affluent DURING a recession whereas the argument is concerned about the CAUSE of the recession.

Hi,
Why A is right and D is wrong?

(D) During a recession the affluent usually borrow money only in order to purchase assets.

This one is tempting given that it seems to say that affluent people got assets because they borrow money to get them, but it is not necesarily so, it is possible that affluent people had the assets already. So this one either weaken or stregthen the argument.

A) This one argues that the issue is actually there, but we have to look for the middle-income households to see it.

The argument concludes that the real cause of the recession must not be household indebtedness.

Why? The author reasons that since money is not lent to those without assets, affluent people must have owed most of the household debt. As a result, low-income households don't need to decrease their spending in order to pay off debts because they aren't able to get loans in the first place.

We're looking for an answer that gives us reason to believe that the real cause might not lie elsewhere -- that household indebtedness is indeed the cause of the recession.

Choice A gives us a new piece of information -- middle-income households owed enough debt that they had begun to decrease spending. At first, this statement might seem unrelated since we're discussing low income and high income households, but in Strengthen/Weaken problems we can bring in a new piece of information into the argument. If a group of households all begun to decrease spending, then perhaps household indebtedness did cause the recession. Let's keep this one.

Choice C is wrong because we don't know what 'somewhat decreased' means. Does it mean $1? $100,000? We don't know.

Choice D tells us that during a recession the affluent usually borrow money only in order to purchase assets. But that argument is that household indebtedness did not cause the recession. Knowing that the affluent borrow money only in a particular scenario does not weaken the conclusion.

Choice E strengthens the conclusion.

Choice A is the answer.

Hi KarishmaB AjiteshArun
I had a bit trouble understanding the argument here. Please help me out!

Conclusion: Therefore, the real cause must lie elsewhere
So my anti-conclusion is: ''high household debt levels COULD HAVE BEEN the cause of the recession despite high asset values

What bothered me is that stimulus says:
Is it implicit in THIS part of the stimulus that, Rich folks, in reality, didn't owe the most of the household debt?
Is it an assumption?­

If yes, then i can easily see, why (A) is the answer.
Stimulus says: A & B are the possibilities for event X, but option (A) says that, Hey you have not considered the possibility ''C''­

­Hi ashutosh_73,

The rest of your analysis is fine, but the argument in the stimulus directly states that affluent people must have owned most of the household debt. Here's how we can look at this question:

P1: "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."

Here the author says that (a) {household debt} causes recession (according to some theorists) and (b) {household debt} was actually high before the recent recession.

Then it seems that the author thinks {high household asset value} is a counterbalance to {high household debt}. We know this because the author says "but so was the value of assets owned by households".

P2: "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 thinks that if {high household debt} and {high household asset value} are split across different types of households (quite affluent | asset / low-income | debt), then {high household debt} could have been the reason for the recession. This is because the author says that low-income households would have to reduce spending in order to pay off the {household debt}. Quite affluent households could maintain existing spending levels even with greater {household debt}.

P3: "But, in fact, quite affluent people must have owed most of the household debt, since money is not lent to those without assets."

The author comes to the (intermediate) conclusion that there is no such split. So the first category is quite affluent | asset | debt. That is, the assets and the debt are both (mostly) held by affluent people (the ones who can hold such debt without reducing spending), because money is not lent to those without assets.

In other words, {household debt} would not have led to a reduction in spending by (a) low-income households, because they would not have any debt and (b) by quite affluent households, because they can maintain existing spending levels.

Conclusion: "Therefore, the real cause must lie elsewhere."

The author concludes that {high household debt} cannot the reason for the recent recession.

TL;DR: The author thinks (a) Y can cause a recession, but (b) because {X can counterbalance Y, and affluent people had both X and Y}, {Y did not cause the recent recession}.

This is a weaken question, so we want to show that {high household debt} could have caused or did cause the recent recession. There are many, many problems in the author's argument, so prephrasing the answer is risky. It's better to move directly to the options.

A. There is a lot that's wrong with the author's argument, but even if we assume that low-income households don't have any assets and that they didn't reduce spending, we can see that the author assumes that there are only two groups (affluent people and low-income households). Option A tells us that there is a third group (middle-income households), and {household debt} did in fact lead to a decrease in spending by this group.

B. In the absence of any other information, this is a (weak) strengthener. For example, if overall household assets (entire economy) < overall household debt (entire economy), we could expect some decrease in spending to pay off debts.

In this question though, the author just says that both are high, so perhaps small differences don't matter. We also don't know who holds the debt: the people who don't need to reduce spending, or the ones who do. No matter how we look at it, this option doesn't weaken the argument (it's either irrelevant or a weak strengthener).

C. This option is a (weak) weakener, because it tells us that low-income households did decrease their spending. However, it is weak because (a) we aren't too worried about small decreases in spending ("somewhat decreased") and (b) this option doesn't link the decrease in spending to {household debt}.

For example, we can't really weaken the argument simply by saying that spending went down. That's what normally happens in a recession. What we need to do is show that {household debt} led to something that caused the recent recession. Option A does that, and therefore it's better than option C.

D. Option D is either irrelevant or, at best, a (weak) strengthener. If a group that holds both the debt and the assets uses the debt only to purchase assets, there would be less pressure on that group to pay off the debt (think about how interest rates on secured debt are usually much lower than interest rates on unsecured debt).

E. This option strengthens the conclusion that {household debt} did not cause the recent recession.­

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