The wealth effect of monetary policy focuses on the effect of money supply changes on the value of stocks and houses.

Question

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The wealth effect of monetary policy refers to how changes in the money supply can influence the value of assets such as stocks and houses. When the money supply increases, it often leads to lower interest rates, which can boost investment in stocks and increase demand for housing, thereby raising their values. This increase in asset values can make people feel wealthier, potentially leading to increased spending and economic activity.

The Wealth Effect of Monetary Policy Focuses on the Effect