1.1.4 [related to the Economics in Practice on p. 641] From March 2007 to May 2009, the price of houses decreased dramatically in many parts of the country.

a. What impact would you expect decreases and increases in home values to have on the consumption behavior of home owners? Explain.

b. In what ways might events in the housing market have influenced the rest of the economy through their effects on consumption spending? Be specific.