In the aftermath of a financial crisis, why does the necessary reduction in consumption by low-income households with significant debt have a more pronounced negative effect on aggregate demand compared to similar reductions by wealthier households?

Policy Response to a Financial Crisis

Analyzing Household Spending After a Financial Shock

During a widespread economic downturn caused by a financial shock, a $1,000 reduction in spending by a low-income family will have the same negative impact on overall economic activity as a $1,000 reduction in spending by a high-income family.