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

Question

Quizplus · Accepted Answer

The wealth effect refers to the change in consumer spending that occurs as a result of changes in the perceived value of a consumer's assets, such as stock holdings or home ownership. Specifically, when the value of these assets increases, consumers tend to feel wealthier and may be more likely to spend money, leading to an increase in aggregate demand. This effect is sometimes referred to as the real-balance effect because it relates to the value of consumers' real, or tangible, assets.

The Wealth Effect Is Another Term for the