The wealth effect is the impact on GDP caused by a(an):
A) direct relationship between the price level and the real value of wealth.
B) indirect relationship between the price level and the real value of wealth.
C) direct relationship between the interest rate and the real value of wealth.
D) indirect relationship between the interest rate and the real value of wealth.
E) only changes in equity prices.

Question

Quizplus · Accepted Answer

The wealth effect refers to the change in spending that accompanies a change in perceived wealth, usually in relation to the real value of assets as the price level changes. This relationship is indirect because changes in the price level affect the real value of wealth, which in turn influences consumption and spending behaviors, impacting GDP.

The Wealth Effect Is the Impact on GDP Caused by A(an)