The wealth effect of a change in the price level refers to the fact that wealthier individuals tend to spend more on foreign goods.

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The wealth effect refers to the change in consumer spending that occurs as a result of a change in the perceived value of assets. Specifically, when the price level increases, individuals who hold assets such as real estate and stocks may feel wealthier and therefore spend more. This increase in spending typically occurs on domestic goods and services, not foreign goods.

The Wealth Effect of a Change in the Price Level