dolution

During the early 2000s, the Canadian Real Estate Association (CREA) MLS Home Price Index, a measure of average home prices, rose continuously until it peaked in May 2008. From May 2008 to March 2009, the index lost 8% of its value in 10 months. Meanwhile, the stock market experienced similar ups and downs. From January 2005 to May 2008, the TSX Composite Index, a broad measure of stock market prices, rose by 61% from 9,087.6 to a high of 14,612.9. From that time until March 2009, the index fell by 43%, to a low of 8,314,1.

a. How do you think the movements in the home prices both influenced the growth in real GDP during the first half of the decade and added to the concern about maintaining consumer spending after the downward adjustment in the housing market that began in 2008 and 2009? To what extent did the movements in the Canadian stock market hurt or help consumer spending?

 b. How do you think the movements in U.S. housing prices both influenced the growth in Canadian real GDP during the first half of the decade and added to the concern about maintaining Canadian consumer spending after the collapse in the American housing market that began in 2006? To what extent did the movements in the U.S. stock market hurt or help Canadian consumer spending? (Hint: Remember Canada is an open economy that trades with the rest of the world, and that the U.S. is its largest trading partner.)