2.6.3 Wealth Effect
Completion requirements
Personal wealth influences the amount of income we spend.
A person who has $100 000 in savings and an income of $40 000 a year, for example, may spend all that annual income. Another person, with the same income but only $12 000 in savings, may spend a smaller portion of income and try to save more.
Consumers who feel more comfortable and secure about their wealth, spend more. This is called the wealth effect.
A person who has $100 000 in savings and an income of $40 000 a year, for example, may spend all that annual income. Another person, with the same income but only $12 000 in savings, may spend a smaller portion of income and try to save more.
Consumers who feel more comfortable and secure about their wealth, spend more. This is called the wealth effect.