1. The slope of the consumption function is called.
2. A decrease in consumer confidence will shift the consumption function (upward/downward).
3. If housing prices fall, you would expect the consumption function to shift (upward/downward).
4. If the MPC increases, the slope of the consumption function will (increase/decrease).
5. Housing Price Increases and Falling Savings. Explain why some economists believed the increase in housing prices after 2002 was related to the fall in household savings that was also observed during that period.
6. Retirement Savings and the Decline in the Stock Market. When the stock market fell sharply in 2007 and 2008, many people near retirement found that their savings for retirement were dramatically reduced. What would be their logical response in this situation? Is this consistent with the wealth effect?
7. Is the Wealth Effect on Consumption from Housing Symmetrical? When housing prices rose some households took out a larger loan on their homes and used the additional funds they borrowed to finance purchases of consumer durables. This option is not available when housing prices fall. Explain how this difference might lead to a larger wealth effect for increases in housing prices than decreases in prices.