The wealth effect is the:
A)inverse relationship between prices and consumption spending due to changes in real wealth.
B)positive relationship between prices and consumption spending due to changes in real wealth.
C)inverse relationship between real interest rates and consumption.
D)positive relationship between real interest rates and consumption.

Question

Quizplus · Accepted Answer

The wealth effect refers to the inverse relationship between prices and consumption spending due to changes in real wealth. When prices increase, the real value of wealth decreases, leading to a reduction in consumption spending, and vice versa.

The Wealth Effect Is The