Leverage — Social Studies definition
Defined in 3 courses:
- Use of borrowing in financing assets, which can magnify changes in owners’ equity. (Global History & Geography II: c. 1750 to the Early 21st Century)
- Use of borrowing so that changes in asset value have magnified effects on equity. (United States History & Government: Colonial Foundations to the Early 21st Century)
- Use of debt alongside equity, magnifying residual gains and losses under stated conditions. (Government, Civic Participation & Economics)
Where it is taught
- The 2007–2009 Financial Crisis: Credit, Risk & Responses — Global Challenges & Historical Inquiry, Global History & Geography II: c. 1750 to the Early 21st Century, Grade 10
- The 1929 Crash: Speculation, Leverage & Banking Risk — The 1920s, Depression & New Deal, United States History & Government: Colonial Foundations to the Early 21st Century, Grade 11
- Financial Instability: Leverage, Risk & Public Responses — Global Connections, Risk & Economic Inquiry, Government, Civic Participation & Economics, Grade 12
In use
The global financial crisis involved housing markets, lending, financial products, leverage, funding arrangements, and institutional oversight.
The 2007–2009 Financial Crisis: Credit, Risk & Responses
Leverage uses debt alongside equity, magnifying changes in asset values relative to the smaller equity base.
Financial Instability: Leverage, Risk & Public Responses
Questions using leverage
Problem 1
Why does leverage magnify the percentage change in equity?
Answer and explanation
Equity is the smaller residual after debt. The same $10 asset loss removes half the original $20 equity while reducing $100 assets by ten percent. Fixed debt in the example concentrates the change on the residual.