Question: 2. On average, consumption (C) changes by 3 cents when a familys housing wealth or stock market wealth changes by a dollar. a. How much

2. On average, consumption (C) changes by 3 cents when a family’s housing wealth or stock market wealth changes by a dollar.

a. How much would we expect economy-wide consumption

(C) to change if U.S. households lost 30 percent of the value of their homes and 40 percent of the value of their stocks during the 2007–2009 financial crisis? Assume that homes were valued in aggregate at $20 trillion before the fall in housing prices and households owned $10 trillion of stocks in aggregate before the fall in stock prices.

b. According to the U.S. Bureau of Economic Analysis, total U.S. consumption was $9.7 trillion in 2007.

What percentage reduction in consumption should these changes in asset values generate?

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