Answer: $632 billion
Explanation:
The wealth effect is such that a $10 change in wealth produces a $2 change in consumption. This means that for every change in wealth, we can expect a change of;
= 2/10
= 20 % of the wealth figure in consumption.
Real Estate prices have tumbled and prices decreased by $160.
That means that consumption decreased by;
= 160 * 20%
= $32
At the $680 billion level of disposable income, Consumption was $664 billion. The new Consumption figure is therefore;
= 664 - 32
= $632 billion
