Which of the following best describes the "wealth effect"?
A)When the price level falls,the real value of household wealth falls.
B)When the price level falls,the nominal value of household wealth falls.
C)When the price level falls,the nominal value of household wealth rises.
D)When the price level falls,the real value of household wealth rises.

Question

Quizplus · Accepted Answer

The "wealth effect" refers to the impact changes in the value of household wealth have on consumer spending. When the price level falls, the real value of household wealth rises, and consumers feel wealthier. This, in turn, leads to increased spending and a boost in the overall economy.

Which of the Following Best Describes the "Wealth Effect