Changes in the value of stocks may play a big role in the consumption decisions of individuals. How would changes in the stock market affect the consumption function?

Corporate stocks are an increasingly popular form of holding wealth in the United States. As stock prices rise, consumers who own stock see the value of their wealth increase and may feel more comfortable increasing their spending. Conversely, if stock prices fall, stockowners may feel poorer and decide to decrease their consumption spending. Therefore, increases in the prices of stocks should cause the consumption function to shift upward representing a higher level of spending even though current disposable income has not increased. A stock market decline would cause the consumption function to shift downward.