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Consumer Credit and the American Economy$
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Thomas A. Durkin, Gregory Elliehausen, Michael E. Staten, and Todd J. Zywicki

Print publication date: 2014

Print ISBN-13: 9780195169928

Published to Oxford Scholarship Online: August 2014

DOI: 10.1093/acprof:oso/9780195169928.001.0001

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The Demand for Consumer Credit

The Demand for Consumer Credit

(p.88) 3 The Demand for Consumer Credit
Consumer Credit and the American Economy

Thomas A. Durkin

Gregory Elliehausen

Michael E. Staten

Todd J. Zywicki

Oxford University Press

This chapter examines neoclassical theory of credit demand, which suggests that there are many conditions in which employing consumer credit increases both amount and satisfaction with consumption, both of which are consistent with wealth maximization. This argues that many consumers will use credit over their economic life cycles, which is entirely consistent with even casual observation. Such credit use often involves purchase of goods and services such as automobiles, appliances, home repairs, and education that provide intertemporal services. This is not to say that some consumers will not sometimes miscalculate or behave irrationally, but even in these cases, there are market mechanisms that limit credit use. These mechanisms include equity costs and liquidity constraints up to and including credit rationing.

Keywords:   consumption, credit demand, credit rationing, intertemporal, market mechanisms, neoclassical theory, wealth maximization

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