Final answer:
The net worth of a household is the total value of its assets minus its liabilities. Home equity, often the largest financial asset for middle-class Americans, plays a pivotal role in this calculation, exemplified by a situation where a house's market value and mortgage balance are used to determine the owner's equity.
"The correct option is approximately option C"
Step-by-step explanation:
A household's net worth (or equity) is best described as the total value of assets minus the total value of its liabilities. This notion is particularly significant when considering how households manage tangible assets such as housing. For a large portion of middle-class Americans, home equity is their most valuable financial asset. To flesh out the practicality of this definition, consider the following example:
Imagine you purchase a home for $200,000 where you make a 10% down payment and borrow the remaining amount through a mortgage.
If the mortgage's remaining balance is $100,000 and the market value of the house increases to $250,000, the homeowner's equity is $150,000 which is calculated by subtracting the loan balance from the home's market value. In a broader economic context, the total value of all home equity held by U.S. households can be substantial; for instance, by the middle of 2021, it was valued at $23.6 trillion according to the Federal Reserve data.