Credit Market Excluded
Credit exclusion is a market failure where individuals, typically those with little wealth, are completely unable to secure loans on any terms. This prevents them from financing highly productive endeavors, such as starting a business or paying for training, even when these projects could generate significant value.
0
1
Tags
Social Science
Empirical Science
Science
CORE Econ
Economics
Economy
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.9 Lenders and borrowers and differences in wealth - The Economy 2.0 Microeconomics @ CORE Econ
Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ
Related
Credit Market Constrained
Credit Market Excluded
Figure 9.15: Indicators of Credit Market Exclusion and Constraints in the US (2019)
How Economists Learn from Facts: Evidence on Credit Market Limitations
Student Loans as a Distinguishing Feature of the US Credit Market
Assessing the Real-World Applicability of Credit Models
A simple economic model of borrowing assumes an individual can freely borrow or lend at a single market interest rate to choose their preferred mix of consumption now versus consumption later. Which of the following real-world situations represents the MOST significant deviation from this model's core assumptions?
Applying Economic Models to a Real-World Scenario
Simple economic models of borrowing and lending make several simplifying assumptions. Match each of the following real-world scenarios to the specific limitation of the simple model that it best illustrates.
A simplified economic model of borrowing assumes an individual can freely borrow any amount at a single market interest rate. According to this model's logic, if it accurately predicts the borrowing choices of a high-income individual, it must also accurately predict the choices of a low-income individual, since the basic trade-off between consuming now versus later is universal.
Model vs. Reality in Lending Decisions
A government analyst uses a simplified economic model which assumes that all individuals can borrow or lend any amount they wish at a single, fixed interest rate. Based on this model, the analyst concludes that a government-mandated, universally available low-interest rate loan will completely solve the problem of individuals being unable to afford major purchases. Which of the following statements provides the strongest critique of the analyst's conclusion by identifying a critical omission in the model?
Evaluating a Model's Prediction
The primary limitation of simple economic models of borrowing and lending is that they fail to account for individuals' irrational psychological biases when making consumption decisions over time.
Critiquing an Economic Policy Statement
Learn After
Assessing Credit Market Access
Which of the following scenarios best illustrates the situation of an individual who is completely unable to access credit on any terms?
A person with very little wealth who is unable to get a loan on any terms is considered 'credit market excluded'. This situation arises primarily because lenders assume such an individual is fundamentally unwilling to repay, rather than because the lender calculates a high risk of the individual being unable to repay.
Lender's Rationale for Credit Exclusion
Consequences of Credit Market Exclusion
Match each individual's situation with the correct term describing their access to borrowing.
Impact of a Policy on Credit Market Access
A lender is evaluating a loan application from an individual who has no savings, property, or other assets that could be used as security. From the lender's perspective, why is this individual most likely to be completely denied a loan, rather than simply being offered one at a high interest rate?
Evaluating a Policy to Address Credit Exclusion
An individual who is offered a loan but at an interest rate so high that they cannot afford the repayments is considered 'credit market excluded'.
Correlation Between Poverty and Credit Limitations
Credit Constraints and the Employment Path for the Less Wealthy