The wealth effect points out that consumption decreases when people's real wealth decreases.

Name: The wealth effect points out that consumption decreases when people's real wealth decreases.
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The wealth effect is the economic theory suggesting that people spend more as the value of their assets rises. Therefore, when people's real wealth decreases, their consumption tends to decrease as well, because they feel less financially secure or less wealthy.

The Wealth Effect Points Out That Consumption Decreases When People's