Wealth effect
LexInter | October 23, 2008 | 0 Comments

WEALTH EFFECT

The wealth effect

The wealth effect is the result of the optimism that results from the increase in the value of assets held by a consumer which induces them to make additional expenses, thus stimulating growth. These assets can either be securities whose value increases as a result of changes in the stock market, or residences whose value increases as a result of changes in the real estate market.

The wealth effect is more pronounced when it comes to real estate assets than when it comes to stock market values.

In the United States it has been estimated that an increase of $ 100 in the value of real estate translates in the short term into an increase of $ 2 in short-term household spending and $ 9 in the long term.

 

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