In the Great Recession of 2007-2009, the stock market values shrank, causing a reverse:
A) Wealth effect
B) Real-balances effect
C) Interest-rate effect
D) Expectations effect

Question

Quizplus · Accepted Answer

The wealth effect refers to the change in consumer spending and saving behaviors that result from changes in wealth, such as changes in the value of stocks and housing prices. In the Great Recession, the stock market values shrank, which led to a decrease in household wealth, causing a reduction in consumer spending and an increase in saving. This is consistent with the wealth effect.

In the Great Recession of 2007-2009, the Stock Market Values