Wealth Effect

Definition

The wealth effect refers to the change in consumer spending patterns resulting from changes in perceived wealth. When individuals feel wealthier due to an increase in asset values (such as housing prices or stock market gains), they tend to spend more money on goods and services.

Related terms

Consumer Confidence: The degree of optimism or pessimism that consumers have about the overall state of the economy and their personal financial situation.

Disposable Income: The amount of income that individuals have available for spending or saving after taxes and other mandatory expenses are deducted.

Aggregate Demand: The total demand for goods and services within an economy at a given price level and period of time.