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if every $1,000 increase in the real price of homes adds 3 cents to annual consumer...

if every $1,000 increase in the real price of homes adds 3 cents to annual consumer spending (the “wealth effect”), by how much did consumption decline when home prices fell by $2 trillion in 2006-2008?
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Answer #1

Decline in consumption = ($2 trillion * 0.03) / $1000

                                      = (2,000,000,000,000 * 0.03) * 1000

                                       = $60,000,000    or $60 million

Thus, consumption decline by $60 million when home prices fell by $2 trillion in 2006-2008.

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