The credit extended to the private sector is defined as the total lending to households and private businesses to implement business transactions. Credit to the household sector consists of consumer credit and mortgage credit. Consumer credit constitutes loans granted for a specific purpose and credit granted for a general use (Balaguy, 1996).
(Guardia, 2000). Consumer credit does not need a guarantee and the tax provisions covering this type of lending differ from those pertinent to mortgage credit.
The circular flow diagram is very helpful in understanding Britain's consumer debt. The circular flow diagram enables one to understand macroeconomics. Goods and services and resources flow through the economy in one direction. The money flows through the economy in the opposite direction. Money is exchanged for specific goods and services which the households purchase regularly.
Another important aspect of the circular flow is the presence of the three main factors of production in the economy fall under these categories: labor, land, and capital. Wages reflect the price of labor. Rent reflects the price of land. Profit is the price for capital. Businesses in the economy are expected to generate profits. Workers who work in these businesses are paid in wages. Then the persons who utilize land for their businesses pay a fixed rent.
The circular flow shows that the households (composed of family members), in the circular flow, own all the labor, land and capital. In markets for factors of production, households sell the services of labor, land and capital to firms in exchange for wages, rent and profit.
Then in the area of consumer credit, the households borrow ...