The Pigou effect refers to the fact that autonomous expenditures may depend on
A)interest rates and variations in the perceived value of money balances.
B)the real money supply and variations in the perceived value of money balances.
C)income and variations in the perceived value of money balances.
D)taxes and variations in the perceived value of money balances.

Question

Quizplus · Accepted Answer

The Pigou effect, also known as the real balance effect, suggests that consumption and hence autonomous expenditures can increase as a result of an increase in the real money supply or wealth, particularly due to a rise in the perceived value of money balances. This effect emphasizes the relationship between consumers' wealth (in terms of real money balances) and their consumption decisions, rather than focusing on interest rates, income, or taxes directly.

The Pigou Effect Refers to the Fact That Autonomous Expenditures