What is the effect of wealth?

The effect of wealth is the economic theory of expenditure habits that claim that consumers 'consumers' consumers are increasing. The perception of consumers of their net assets usually depend on assets such as stocks and real estate, except for liquid assets such as cash and bank accounts. Unlike cash in the bank, however, the values ​​of real estate and shares are only wealth on paper and do not represent real wealth until sale, perhaps at a lower price. Until the actual sale, the increased value is only a market judgment of potential wealth. The increased value of housing and stock stock prices causes consumers to feel more confident. They felt more confident, spend more and become more willing to buy goods and services by obtaining additional credit.

However, demand is not raised for all goods, but consumers feel richer. As the wealth of consumers increases, some consumers start cheaply decreased goods and trade with more expensiveI objects. For example, under the effect of wealth, rather than buying small, fuel -efficient cars, consumers can buy a large and more expensive SUV with a bad mileage.

economists who studied this phenomenon quantified its effects. In general, they found that the effect of wealth caused by rising real estate or stock prices increases consumer expenditures by 2 to 9 percent for each dollar increased wealth. One study found that the effect of wealth from rising housing prices increased consumers more than a rich effect from higher stock prices.

The effect of wealth is often cited by economists in reviewing consumer expenses or consumer confidence. Ben Bernanke, chairman of the federal reserve system, wrote in OP-ED for Washington Post in November 2010 that in the government the purchase of a Fed of $ 600 billion (USD) in government in government, the second fed attempt on quantitative releasing for the stimulusACI US economy would cause stock prices to rise. Those who believe in the effect of wealth caused by rising securities and housing prices usually admit that falling housing and stock prices can cause a reverse wealth in which consumers' declining confidence on perceived wealth can cause consumers to get into expenses.

Not all economists have enrolled in theory of wealth. Several points on the boom of dot.com late 90s and subsequent bust at the beginning of 2000. Boom and bust did not bring any significant increase or decrease in consumers' consumption, they say.