Question

If every $1,000 increase in the real price of homes adds $0.07 to annual consumer spending (the "wealth effect"), by how much will consumption decline if home prices fall by $1.5 trillion?

Answer 1

$140,000

Step-by-step explanation:

The computation is shown below:

Given that

Increase in the real price of the home = $1,000

Add cents = $.07

Fall in home prices = $1.5 trillion

So by considering the above information, the consumption should be decline by

= 2 trillion ÷ $1,000 × $.07

= $2,000,000 × $.07

= $140,000

Hence, the consumption is declined by $140,000