Finance glossary
Wealth Effect
Definition
The tendency to spend more as asset values rise.
The wealth effect describes how people increase spending when their homes or investments gain value, feeling richer even without higher income. It can stimulate the economy during bull markets but reverse during downturns, amplifying both expansions and contractions.
In a sentence
As home prices climbed, the wealth effect had owners spending more even though their paychecks hadn't changed.
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