wealth effect Finance Definition
The
tendency of consumers to spend more because they believe they are wealthier.
This newfound wealth may come from stock gains during a bull market or the
rising value of real estate investments. If a wealth effect becomes too
pronounced, it can produce inflation. That was a fear of Federal Reserve policy
makers who kept watching for signs of inflation from consumers strong spending
habits during the record run-up in the stock market in the late 1990s that
peaked in 2000.
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