Household indebtedness, which some theorists regard as causing recession, was high preceding the recent recession, bu... on June 24, 2020

Could someone please explain this?

Could someone please explain this? Thanks

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shunhe on June 28, 2020


Thanks for the question! So let’s try to simplify this very complicated stimulus. We’re told that some theorists think that households having debt causes recession. This debt was pretty high before the last recession, but so was value of assets owned by households. Now, it’s true that if rich households had the assets and poor households had the debt, that could cause a recession. But, instead, the author says, rich people owned most of the debt because people without assets don’t get loans. So, concludes the author, the real cause (of recession) must lie elsewhere. The author is disagreeing with the theorists mentioned earlier in the paragraph.

Now we’re asked to weaken this argument. In other words, we should somehow show that it could be possible for household debt to cause recessions. There’s a couple of weak points here to anticipate before we go into the answer choices. For example, it states that money isn’t lent to those without assets, when this probably does happen (though this isn’t the answer choice). It also might not address all possible groups, since it only talks about affluent households and low-income households, leaving out a group in the middle.

Take a look at (A). It tells us that before the recent recession, middle-income households owed enough debt that they stopped decreasing spending. This brings in discussion of the group in the middle that the passage originally left out, those with middle-incomes. And if those people stopped spending as much, then that might have been what triggered the recession, which means it would’ve stemmed from household indebtedness, which would weaken the argument. It introduces an alternate cause, essentially, that the argument doesn’t address, and so (A) weakens the argument here.

Hope this helps! Feel free to ask any other questions that you might have.