Another term for the real-balance effect is
A) the substitution effect.
B) the wealth effect.
C) the indirect effect.
D) the interest rate effect.

Question

Quizplus · Accepted Answer

The real-balance effect is the impact that a change in prices has on the purchasing power of money. When prices decrease, the real value of money increases, which increases the wealth of consumers. This increase in wealth leads to more spending, known as the wealth effect. Therefore, another term for the real-balance effect is the wealth effect.

Another Term for the Real-Balance Effect Is