The Wealth Effect


The Wealth Effect
The premise that when the value of stock portfolios rises due to escalating stock prices, investors feel more comfortable and secure about their wealth, causing them to spend more. For example, economists in 1968 were baffled when a 10% tax hike failed to slow down consumer spending. Later this continued spending was attributed to the wealth effect. While disposable income fell as a result of increased taxes, wealth was rising sharply as the stock market moved up. Undaunted, consumers continued their spending spree.

The wealth effect helps to power economies during bull markets. Big gains in people's portfolios can make them feel more secure about their wealth and their spending. However, the relationship between spending and stock market performance is a double-edged sword as poor stock prices in bear markets hurt economic confidence.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Wealth effect — The wealth effect is an economic term, referring to an increase in spending that accompanies an increase or perceived increase in wealth.Effect on individualsThe effect would cause changes in the amounts and composition of consumer consumption… …   Wikipedia

  • wealth effect — ➔ effect * * * wealth effect UK US noun [S] ECONOMICS ► the theory that when the value of assets such as gold, shares, and property rises, people spend more: »One of the primary drivers of spending by American consumers is the wealth effect of… …   Financial and business terms

  • wealth effect — (WELTH uh.fekt; TH as in thin) n. An increase in consumer spending based on the perceived wealth created by the escalating value of stock market portfolios. Example Citation: Big portfolio gains by investors in recent years have created what… …   New words

  • The Wealth of Nations — An Inquiry into the Nature and Causes of the Wealth of Nations is the magnum opus of the Scottish economist Adam Smith. It is a clearly written account of economics at the dawn of the Industrial Revolution, as well as a rhetorical piece written… …   Wikipedia

  • IQ and the Wealth of Nations — Infobox Book name = IQ and the Wealth of Nations title orig = translator = image caption = IQ and the Wealth of Nations cover author = Richard Lynn Tatu Vanhanen illustrator = cover artist = country = language = English series = subject = genre …   Wikipedia

  • Races of the Mass Effect universe — This article is about the fictional races found within the Mass Effect universe. These races are explored in the novels Mass Effect: Revelation and Mass Effect: Ascension, and the video games Mass Effect, Mass Effect Galaxy, and Mass Effect 2.… …   Wikipedia

  • IQ and the Wealth of Nations — (literalmente en español, CI y la riqueza de las naciones) es un libro controvertido de 2002 escrito en inglés por el Dr. Richard Lynn, profesor emérito de Psicología de la Universidad del Ulster, Irlanda del Norte; y por el Dr. Tatu Vanhanen,… …   Wikipedia Español

  • IQ and the Wealth of Nations — QI moyen calculé et/ou estimé par Richard Lynn dans IQ and Global Inequality …   Wikipédia en Français

  • Wealth elasticity of demand — in microeconomics is the relation of the proportional change in consumption of a good to a proportional change in wealth (as distinct from changes in personal income). Measuring and accounting for the variability in this elasticity is a… …   Wikipedia

  • Wealth — For other uses, see Wealth (disambiguation). Wealth is the abundance of valuable resources or material possessions. The word wealth is derived from the old English wela, which is from an Indo European word stem.[1] An individual, community,… …   Wikipedia


Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.