This is a guest post from Pablo Gibson, a finance blogger at safefinancing.blogspot.com:
The term "consumer debt" is referred to debts that are owed as a result of buying goods that are for the purpose of consumption or possession rather than investment. Credit card and personal loans have proven instrumental for making unnecessary consumption-related purchases. The affect of increasing consumer debt on a country’s economy can be severe. If you have incurred overwhelming debt then hire the services of a debt settlement attorney to manage your financial situation.
What is money multiplier effect?
The money multiplier effect is considered to be an advantage of consumer debt. Most of the business houses make huge profit with the increase in consumer purchases. Therefore, the consumption purchases help to generate more money for the organization selling the product, the employees of the organization, its suppliers and its suppliers' employees. It also helps to generate income for the lending organization and its employees.
Interest Rates
The Federal Reserve in the US has set up Federal Funds Target Rate in the US that controls the interest rate in the economy. The prime interest rate is determined by the target rate - this is the rate at which the bank set up the rate on the short-term loans so this has an effect on the rates of the institutional and retail borrowers.
The Federal Reserve will be aware of the drop in consumer purchases of products and services in the economy with dwindle in the consumer debts. In such situation, they encourage people to spend more by decreasing the Federal Funds Target Rate. So the interest rates can have an impact on buying a new house, starting a new business and on higher education.
When there is high consumer debt in the economy, the consumers will use a large portion of his income in paying off the high interest credit card debt. People in such situation hardly save money to invest in a 401(k) plan.
If the consumer debt grows incessantly then the people might incur overwhelming debt and if they default then the economy will be severely affected.
The term "consumer debt" is referred to debts that are owed as a result of buying goods that are for the purpose of consumption or possession rather than investment. Credit card and personal loans have proven instrumental for making unnecessary consumption-related purchases. The affect of increasing consumer debt on a country’s economy can be severe. If you have incurred overwhelming debt then hire the services of a debt settlement attorney to manage your financial situation.
What is money multiplier effect?
The money multiplier effect is considered to be an advantage of consumer debt. Most of the business houses make huge profit with the increase in consumer purchases. Therefore, the consumption purchases help to generate more money for the organization selling the product, the employees of the organization, its suppliers and its suppliers' employees. It also helps to generate income for the lending organization and its employees.
Interest Rates
The Federal Reserve in the US has set up Federal Funds Target Rate in the US that controls the interest rate in the economy. The prime interest rate is determined by the target rate - this is the rate at which the bank set up the rate on the short-term loans so this has an effect on the rates of the institutional and retail borrowers.
The Federal Reserve will be aware of the drop in consumer purchases of products and services in the economy with dwindle in the consumer debts. In such situation, they encourage people to spend more by decreasing the Federal Funds Target Rate. So the interest rates can have an impact on buying a new house, starting a new business and on higher education.
When there is high consumer debt in the economy, the consumers will use a large portion of his income in paying off the high interest credit card debt. People in such situation hardly save money to invest in a 401(k) plan.
If the consumer debt grows incessantly then the people might incur overwhelming debt and if they default then the economy will be severely affected.
RSS Feed
