A stock market boom which causes stock prices to rise should cause
A)a decrease in consumption spending.
B)an increase in consumption spending.
C)a decrease in wealth.
D)a decrease in net export spending.

Question

Quizplus · Accepted Answer

When stock prices rise, it can increase consumer confidence, leading to an increase in consumption spending as people feel wealthier and more willing to spend money. This is known as the wealth effect. Therefore, option B is the best choice. Option A is incorrect because a rise in stock prices would not lead to a decrease in consumption spending. Option C is incorrect because a rise in stock prices actually increases wealth, not decreases it. Option D is incorrect because there is no direct relationship between stock market booms and net export spending.

A Stock Market Boom Which Causes Stock Prices to Rise