The wealth effect occurs when the price level falls, causing the:
A)real value of household wealth to fall.
B)nominal value of household wealth to fall.
C)nominal value of household wealth to rise.
D)real value of household wealth to rise.

Question

Quizplus · Accepted Answer

The wealth effect refers to the change in consumer spending triggered by a change in perceived wealth, often due to changes in the price level. When the price level falls, the real value of money increases because consumers can buy more with the same amount of nominal wealth, effectively increasing their real wealth. This is why the real value of household wealth rises, not falls or changes in nominal terms.

The Wealth Effect Occurs When the Price Level Falls, Causing