According to the new clip, how did consumption expenditure respond in the first quarter of 2008? What factors could explain why consumers’ actual response differs from what the consumption function model predicts?
Americans saw their net worth decline by $1.7 trillion in the first quarter of 2008. Until then, net worth had been rising steadily since 2003. “The recent declines, however, may not affect consumer spending,” said Michael Englund, senior economist with Action Economics. Americans have actually spent more in recent months—spending everything in their wallet and borrowing more. Household debt grew by 3.5 percent with consumer credit rising at an annual rate of 5.75 percent.