The wealth effect
A) Was particularly strong in the late 1990s
B) Occurs when the families wealth increases which raises their consumption expenditures because their need for additional savings is reduced
C) Family is making above $200,000 a year
D) A and B above
E) None of the above

Question

Quizplus · Accepted Answer

The wealth effect was indeed particularly strong in the late 1990s, largely due to the dot-com bubble that significantly increased the value of investments and assets. Additionally, the wealth effect occurs when an increase in a family's wealth, often due to higher asset values, leads to an increase in consumption expenditures because they feel less need to save for the future, as described in option B.

The Wealth Effect