Final answer:
Consumer borrowing, particularly through credit card debt and subprime mortgages, temporarily stimulated the US economy but later contributed to the Great Recession of 2008 by entrenching unsustainable debt levels and triggering a reduction in consumer spending.
Step-by-step explanation:
Consumer borrowing had significant implications on the overall economy, especially evident during the Great Recession of 2008. With flat wages since the late '70s relative to inflation, consumers increasingly relied on credit to make purchases. Consequently, by 2008, credit card debt surpassed $1 trillion, and many banks issued high-risk subprime mortgages. The extensive borrowing stimulated the economy in the short term, leading to high consumption, increased demand for imported goods, and inflated housing prices. However, unsustainable lending practices, coupled with an unequal distribution of wealth and overextended consumers, led to a steep decline in consumer spending once the economic crisis hit. The reduction in spending along with declining international trade severely impacted American businesses. Finally, the crash in the stock market and the banking system eroded consumer confidence and demand further, exacerbating the economic downturn.