Factors Boosting Household Borrowing

Steps:

• Identify key drivers: lower interest rates reduce borrowing costs, while higher confidence encourages spending via loans.
• Assess each option: check if both factors promote borrowing.
• Eliminate options with at least one deterrent.
• Select the pair where both enhance borrowing.

Why C is correct:

• Lower interest rates decrease the cost of loans (per the interest rate effect in consumption theory), and higher consumer confidence boosts optimistic spending, increasing demand for credit.

Why the others are wrong:

• A: Pensioners typically have fixed incomes, reducing borrowing needs; inflation erodes purchasing power but doesn't directly spur loans.
• B: Greater wealth lowers reliance on borrowing; lower interest rates help but are offset by reduced need.
• D: Higher interest rates raise borrowing costs, deterring loans despite better credit access.

Final answer: C