QUESTION 7 1 points Save Answer The wealth effect tells us that: O there is an i

Question

QUESTION 7 1 points Save Answer The wealth effect tells us that: O there is an inverse relationship between the price level and consumption, because as prices increase consumption will fall due to lower real wealth. there is a positive relationship between the price level and consumption, because as the price level increases consumption wil also increase due to an increase in real wealth. there is an inverse relationship between investment and the price level, because as the price level increases the amount of investment will fall as the wealth of companies falls there is a positive relationship between investment and the price level, because as the price level increases the amount of investment will increase as the wealth of companies increases as prices increase.

Explanation / Answer

Wealth effect can be described as a situation when a consumer or corporate spending is influenced by a change in the value of an asset, such as property prices or share prices.

Option First describes best a wealth effect because there is an inverse relationship between price and consumption. This is because as the price level increases, it leads to decrease in the consumption because the real wealth of the consumer decreases.

Hence option third also describes best a wealth effect because there is an inverse relationship between price and investment This is because as the price of the assets increases, it leads to decrease in the investment because the real wealth of the company decreases.

Hence option first and third are correct about wealth effect.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.