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?
A) the interest rate
B) current disposable income
C) household wealth
D) the price level

Question

Quizplus · Accepted Answer

Household wealth is the most closely related variable to the decrease in consumer spending during the 2007-2009 recession. Falling home values resulted in a decrease in the value of household assets, thus reducing household wealth and reducing the ability and willingness of consumers to spend. The other variables listed (interest rate, current disposable income, and price level) may also affect consumption, but in this specific scenario, household wealth had the greatest impact.

The Decrease in Consumer Spending During the 2007-2009 Recession Was