In August \(2007,\) a sharp downturn in the U.S. housing market reduced the income of many who worked in the home construction industry. A Wall Street Journal news article reported that Walmart's wire-transfer business was likely to suffer because many construction workers are Hispanics who regularly send part of their wages back to relatives in their home countries via Walmart. With this information, use one of the principles of economy-wide interaction to trace a chain of links that explains how reduced spending for U.S. home purchases is likely to affect the performance of the Mexican economy.

The initial event is the sharp downturn in the U.S. housing market in August 2007 which reduces the income of many people working in the home construction industry.

Due to the downturn in the housing market, the demand for new homes decreases. This decrease leads to a reduction in the number of homes under construction and a lowering in the income of construction workers, including many Hispanics.

As many Hispanic construction workers' incomes decrease, they have less money to send back to their home countries via Walmart's wire-transfer business. Thus, the downturn in the housing market negatively affects Walmart's wire-transfer business since there will be less demand for the service.

As construction workers send less money through Walmart's wire-transfer service, the amount of remittances going to Mexico decreases. Remittances are an important part of the Mexican economy as they provide a significant source of income for many Mexican families.

With less remittances being sent from the U.S., the Mexican economy suffers. A decrease in remittance inflows affects the purchasing power of many Mexican families, leading to lower consumption levels. Reduced consumption then has a negative impact on businesses, as they experience lower demand for their products and services. This in-turn affects their ability to invest, create jobs, and contribute to overall economic growth. By using the principles of economy-wide interaction, we can trace a chain of links which show that a downturn in the U.S. housing market can have a significant impact on the performance of the Mexican economy through the reduction of income in construction workers and their remittances sent to Mexico.