A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of
A) the interest-rate effect.
B) the real-balances effect.
C) a change in the degree of excess capacity.
D) a change in the real value of consumer wealth.

Question

Quizplus · Accepted Answer

A sharp rise in the real value of stock prices would be best attributed to a change in the real value of consumer wealth, as it indicates that consumers perceive their wealth to have increased. The interest-rate effect and real-balances effect both relate to changes in the price level, while the degree of excess capacity refers to a measure of unused production resources.

A Sharp Rise in the Real Value of Stock Prices