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Briefly define 'Household Debt' and explain what generally happens in the broader economy when the level of total household debt rises or falls significantly
Often in an economy it is difficult to purchase, or put payment for a singular expenditure at one go. As a result of which, most people opt for credit. As opposed to common conception, credit is not bad, rather it contributes towards the fiscal development of the economy. However, each credit is to be managed intelligently to avoid any challenges. In a singular household there are multiple members, the household debt is the total debt within a household. For example, in a family of four, the mortgage loans, credit card loans, insurance, asset-based loans, business loans, student loans and so on will all be accounted as consumer loans, which in a household makes up household debt.
An increase in the household debt literally means that the consumer demands for varied assets has increased in the market. As a result of which the import needs of the company increase, and the economy has a high credit debt. All these variables contribute towards high economic burden on the nation. For example, a high mortgage means pressure on the banking as well as construction sector, which can contribute towards an initial rise in the demand, and a temporary growth in the economy. However, as the overall household debt of the house increases, the challenges in the management of the credit also raises. This in turn poses additional stress on the other sectors in terms of employment as well as management of the wages, which invariably leads to economic recession and reduced growth for the nation.
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