Question

Debt accumulation in the US is an example of

a) How the wealthy have managed to climb to the top of the social ladder. b) The benefits of a free market economy. c) The manner in which class, race, and ethnicity can intersect. d) The ways in which the separation of classes has been minimized. e) Consequences of poor lifestyle choices by members of the lower class

Answer 1

The correct answer is option (e)

· Debt accumulation is a process of accumulation of debt in an economy or by an individual due to poor money management

· There have been various reasons for debt accumulation in the US economy. The Housing crisis on 2005 indicated that there was may defaulted customers who were not able to pay back the loan and lead to a recessionary economy in the US

· The lower section of people who tend to rely more on loans for many activities would be more prone to defaults

· Once the number of defaulted customers increases or the defaulted settlement never happens within an economy, it would lead to accumulation of bad loans which falls in to the category of non-repayable assets within an economy.

· With increase in these ‘bad loans’, the economy would begin to fall as to what happened in the US housing crisis which would lead to further debt accumulation within the economy

· Thus, as a consequence of poor lifestyle choices of lower class, they may tend to borrow more and would be unable to repay which could lead to all the cases as mentioned above

NB: As far as other options are concerned;

· The wealthy class would be always able to repay debts withing an economy and hence could not lead to debt accumulation of an economy.

· A free market economy works on the basis of supply and demand and hence results in optimal allocation of the resources and hence could not lead to debt accumulation.

· Once the class, race and ethnicity intersect or once the separation of classes are minimised, each sector would be more well connected within an economy which could lead to positive interactions within an economy and could prevent debt accumulation tendencies that may happen in an economy.