In which situation are people most likely to spend more?
A) when stock prices and interest rates rise
B) when their real wealth rises and interest rates fall
C) when stock prices fall and interest rates rise
D) when their real wealth and interest rates fall

Question

Quizplus · Accepted Answer

When real wealth (the value of assets minus debt) rises, people tend to feel more financially secure and are therefore more willing to spend money. In addition, when interest rates fall, borrowing becomes cheaper, leading to an increase in spending. Therefore, B is the most likely situation in which people will spend more. Option A (when stock prices and interest rates rise) could also lead to an increase in spending, but it depends on how confident people are in the economy and their personal financial situations. Option C (when stock prices fall and interest rates rise) and Option D (when real wealth and interest rates fall) are more likely to lead to a decrease in spending due to feelings of financial insecurity.

In Which Situation Are People Most Likely to Spend More