Question 6
2 pts
Article Summary
Consumer spending declined during the recession of 2007-2009, due in part to falling home values, but the decline in consumer spending lasted much longer than
in past recessions. The European Central Bank (ECB) analyzed what it referred to as the "stylized facts" of U.S. recessions since the Great Depression and found
that the prolonged drop in consumer spending during the 2007-2009 recession is atypical. The ECB found that since World War II, consumer spending during
recessions in the United States has typically fallen 0.4 percent in a single quarter before returning to pre-recession levels within two quarters, even as business
spending and exports continued to fall. During the recession of 2007-2009, however, consumer spending declined by 1.6 percent from December 2007 until the
fourth quarter of 2008, and the decline continued into 2009. A bulletin published by the European Central Bank described the situation in the following way:
"While households have been a powerful force in dampening the downturn in past recessions, the same may not be true in the current episode."
Source: Carter Dougherty, "Consumer Spending Declines: A Historical Oddity," New York Times, April 14, 2009
Refer to the Article Summary. The decrease in consumer spending during the 2007-2009 recession was due in part to falling home values. This reason for the decline in
consumer spending is most closely related to which of the following variables that determine the level of consumption?
Ocurrent disposable income
the price level
the interest rate
household wealth
