PT12.S4.Q11 - household indebtedness, which some theorists

ChiTownGuy

Can anyone help me out with this one? No idea what the stimulus is saying nor why anything is right or wrong. Utterly confused.

blah170blah

Is the correct answer choice (A)? On mobile and I'm having difficulty checking.

ChiTownGuy

Yea, the correct choice is A. This has to be one of the most convoluted/complex stimuli I've ever seen.

blah170blah

The goal is to figure out what caused the recession.

The author is saying that typically, low spending on the part of people who hold the most debt is what causes recessions. We think that lower income households have the most debt (and therefore them not spending) is what caused the recession but what we found is that high income households have the most debt (and presumably they have money to spend). Therefore, low-spending doesn't seem to be the reason for why we have a recession.

Or so we think.

Answer choice (A) tells us that actually, there's a third group of people the argument doesn't consider, which are middle income households. The answer choice is arguing that this group of people have significant enough debt such that their low spending habits, which could then still explain the causal relationship low spending --> recession. We just are realizing that the low-spending group are not lower or high income households but in fact middle income households.

ChiTownGuy

Wow ok that's makes more sense than what I was thinking ha! Thanks