The reverse wealth effect will tend to decrease consumption and increase saving.

Question

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The reverse wealth effect, which occurs when the value of an asset decreases, will often cause people to feel less wealthy and therefore less likely to spend money. Instead, they may choose to save more of their income in order to compensate for the decrease in asset value. Thus, consumption tends to decrease and saving tends to increase.

The Reverse Wealth Effect Will Tend to Decrease Consumption and Increase