What is the likely chain of events if asset prices rise? People feel wealthier,
ID: 1225011 • Letter: W
Question
What is the likely chain of events if asset prices rise?
People feel wealthier, so their spending falls and their saving rises, causing interest rates to fall.
People feel wealthier, so their spending rises and their saving falls, causing interest rates to rise.
People feel wealthier, so their spending rises and their saving rises, causing interest rates to fall.
People feel poorer, so their spending falls and their saving rises, causing interest rates to fall.
A.People feel wealthier, so their spending falls and their saving rises, causing interest rates to fall.
B.People feel wealthier, so their spending rises and their saving falls, causing interest rates to rise.
C.People feel wealthier, so their spending rises and their saving rises, causing interest rates to fall.
D.People feel poorer, so their spending falls and their saving rises, causing interest rates to fall.
Explanation / Answer
Ans-
People feel wealthier, so their spending falls and their saving rises, causing interest rates to fall.
Explanation-The curve is downward sloping where X axis measures interest rate and Y axis measures asset price.Here,we can see when asset price increases interest rate will fall and vice versa.It's natural that people will feel wealthier when asset price increases so they will spend and save less.
A.People feel wealthier, so their spending falls and their saving rises, causing interest rates to fall.
Explanation-The curve is downward sloping where X axis measures interest rate and Y axis measures asset price.Here,we can see when asset price increases interest rate will fall and vice versa.It's natural that people will feel wealthier when asset price increases so they will spend and save less.
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