ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -a decrease in real wealth, a decrease in current consumption expenditure, and an increase in saving. If the price level rises, whatever wealth people is worth less in real terms. This is because an increase in price levels causes a fall in the value of money.

Detailed explanation-2: -Price levels are leading indicators in the economy; rising prices indicate higher demand leading to inflation while declining prices indicate lower demand or deflation.

Detailed explanation-3: -What is The Wealth Effect? The wealth effect is a behavioral economic theory suggesting that people spend more as the value of their assets rise. The idea is that consumers feel more financially secure and confident about their wealth when their homes or investment portfolios increase in value.

Detailed explanation-4: -Definition: The wealth effect of a change in the aggregate price level is the effect on consumer spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers’ assets.