Explain and draw a graph to illustrate how a decrease in household wealth theoretically impacts the consumption function and saving function.
Americans saw their net worth decline by $1.7 trillion in the first quarter of 2008. Until then, net worth had been rising steadily since 2003. “The recent declines, however, may not affect consumer spending,” said Michael Englund, senior economist with Action Economics. Americans have actually spent more in recent months—spending everything in their wallet and borrowing more. Household debt grew by 3.5 percent with consumer credit rising at an annual rate of 5.75 percent.