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Reviewing the Wealth Effect

Interested in learning more about the wealth effect? The first thing that you should keep in mind is that it’s a well-known financial term that is often used to describe the increase in spending accompanying the increase in wealth or some perceived increase in it. Don’t forget that this kind of effect has an influence on both the government and people.

When it comes to the wealth effect on people, it causes certain changes in the composition and amount of their consumer consumption resulted by changes in their wealth. There is an opinion that consumers should spend more when certain factors are present, including their increased wealth or their perceptions that they are richer than they were in the past. It’s obvious that this situation has a range of macroeconomic implications, like the decreased supply of labor while people’s personal income is still increased. Another important detail that you should understand is that the concept of the wealth effect on people can’t stand up to financial data. As an example, pay attention to the stock market increase in the 90s because it definitely boosted the wealth of US citizens, but it failed to produce any significant changes in their average consumption.

What about the wealth effect on the government? The events that happened in the near past made some reliable analysts to characterize both spending and borrowing behaviors of the government as the wealth effect. Think about the latest fiscal policies, growing concerns about public debts, and so on. When it comes to the low costs of government borrowing, they ensure decoupling, and this means that taxpayers can’t cover the full cost of its spending. There are some possible solutions to this problem, such as lowering existing taxes.

After reviewing all relevant topics and definitions, you should understand what the wealth effect is all about. It’s a statement that when investors tend to feel more convenient and safe about their wealth while spending more when the values of stock portfolios rise because of escalating prices. You also should be able to break down this kind of effect and review its basic functions, such as powering economics. Take into account that it’s all about a certain psychological effect of increasing asset values, and this interesting concept is focused on people’s feeling of security or consumer confidence results in their higher spending levels in conjunction of lower saving levels.

Interested in learning more about the wealth effect? The first thing that you should keep in mind is that it’s a well-known financial term that is often used to describe the increase in spending accompanying the increase in wealth or some perceived increase in it. Don’t forget that this kind of effect has an influence on both the government and people.

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Assignment ID
100001175
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CREATED ON
August 26, 2016
COMPLETED ON
August 27, 2016
Price
$14
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