The wealth effect refers to the increase in savings and consumption resulting from increases in residential house prices and gains in the stock markets, which make people feel wealthier and more likely to spend money. It is not related to wealthy people's savings, the number of wealthy individuals in a country, or increases in bank balance sheets.

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The Wealth Effect Is

Question 198

Multiple Choice

The wealth effect is

A) the result of wealthy people increasing the savings.
B) the increase in savings and consumption resulting from increases in residential house prices and gains in the stock markets.
C) the increase in the number of wealthy individuals in a country.
D) the result of large increases in the balance sheets of the banks.

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