What is the wealth effect?
A) The tendency for many individuals to copy the consumption patterns of the wealthy.
B) The tendency for increases in wealth to lead to increases in savings.
C) The tendency for increases in wealth to lead to increases in consumption.
D) The tendency for the wealthy to willingly share their good fortune with the less well off.

Question

Quizplus · Accepted Answer

The wealth effect refers to the tendency for increases in wealth (such as through higher income, stock market gains, or rising home values) to lead to increases in consumption by households. As people feel wealthier, they may be more likely to spend money on discretionary purchases or to upgrade their lifestyle. This can have ripple effects on the broader economy, as increased consumer spending can boost business revenues, job growth, and other economic indicators.

What Is the Wealth Effect