Question

1. Explain why we have high levels of personal debt. Who benefits and who loses when individuals borrow beyond their ability to pay off the debts? How should this problem be addressed by government and the babking system?

2. What do you think interested you the most in this course? I do think that all students should take an economics course. It is important for you as a business professional, a voter, a taxpayer, a citizen, a student, a borrower, a worker and a parent. Do you agree? Explain.

Answer 1

1. Explain why we have high levels of personal debt. Who benefits and who loses when individuals borrow beyond their ability to pay off the debts? How should this problem be addressed by government and the banking system?

Personal debt can be higher due to many reasons: a. Financial irrationality. B. spending beyond means c. Personal or family illnesses. d. Cyclical unemployment.

Both borrower and lender are worse off by having/giving more loans than repayment capacity. Only goods and services producers/sellers and people working in them are better off. Example- A highly indebted person buys a new television on loan. Seller gets money upfront from bank, makers sell tv and it creates job. However, a person unable to repay will have psychological stress, banks will have financial stress. They will have less capacity to lend and credit sound customers will not get loan which may halt economic growth and people will lose jobs making everyone worse off.

Govt. should make insolvency and bankruptcy laws proper so that borrower will have a fixed timeline to pay or else lenders can confiscate property and loans are recovered.

Banks should have a proper credit check and no loan to be given to a risky person. Banks may offer incentives for early payments. Banks can also make loans at less cost to customers so that they actually get more amount and can think of repayment. In short processing fees may be less.

2. What do you think interested you the most in this course? I do think that all students should take an economics course. It is important for you as a business professional, a voter, a taxpayer, a citizen, a student, a borrower, a worker and a parent. Do you agree? Explain.

yes, having a good knowledge of economics helps to make rational decisions. Learning economics helps to understand cause-effect relationship in financial markets and investments and business decisions are facilitated with this knowledge. It also helps in understanding system around us from inflation to taxation and from politics to international relations. It also helps to make informed political and personal choices.