According to the household liquidity effect,higher stock prices lead to increased consumption expenditures because consumers
A)feel more secure about their financial position.
B)want to sell stocks and spend the proceeds before stock prices fall.
C)believe that their wages will increase due to increased profitability of firms.
D)can now afford more expensive imports.

Question

Quizplus · Accepted Answer

The household liquidity effect suggests that when stock prices increase, consumers feel more financially secure and may increase their consumption expenditures. As a result, they may be more willing to spend money on goods and services, which can boost economic growth. Option B is incorrect because the household liquidity effect suggests that consumers will spend more as stock prices increase, not sell their stocks. Option C is incorrect because the profitability of firms may not necessarily translate into higher wages for workers. Option D is incorrect because higher stock prices do not necessarily translate into consumers being able to afford more expensive imports.

According to the Household Liquidity Effect,higher Stock Prices Lead to Increased