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When lenders provide credit, they increase the borrower's debt, while the borrower gains the ability to expanding spending and investment. As income increases, repayment becomes feasible, creating a positive feedback loop:
Increased borrowing → More spending → Economic growth
Future income growth > debt costs → Debt sustainability
The growth and contraction of credit (or credit cycles) are fundamental to economic fluctuations. High credit availability encourages spending beyond current income levels, igniting economic expansion. Conversely, tightening credit hampers activity, leading to downturns.