Wealth effect

Wealth effect – definition

A wealth effect refers to an increase (or decrease) in consumer or corporate spending following an increase (or decrease) in the value of an asset, such as through an increase in property prices or share prices. Increases in wealth create two effects – firstly, wealth can be converted to income through a process called ‘equity withdrawal’ and, secondly, increases in wealth create positive expectations – both of these effects can encourage increased spending throughout the economy.

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