Final answer:
The 'wealth effect' refers to changes in consumption behavior due to fluctuations in an individual's perceived wealth, often because of stock market or asset value changes. This effect is influenced by inflation and economic downturns such as the 2008-2009 financial crisis, and does not provide a precise spending increment per 100 units of wealth.
Step-by-step explanation:
The student's question is centered around the concept of the wealth effect, which implies that personal consumption can be affected by changes in perceived wealth, primarily due to fluctuations in the stock market or asset values. The wealth effect argues that when an individual experiences an increase in their financial assets, their propensity to spend typically increases, and conversely, when there is a loss in asset value, consumption spending is likely to decrease. In the context of the question, which relates to how much additional spending is done for every 100 units of increased wealth, the wealth effect does not provide a singular, exact figure because it can vary based on various economic models and individual circumstances.
During periods of inflation or rising price levels, the buying power of savings and assets diminishes as the value of currency decreases, mitigating the wealth effect by making individuals feel less wealthy. This reduction in perceived wealth leads to decreased consumption spending. Moreover, the 2008-2009 global financial crisis is a vivid example that reflects the significant impact of the decline in asset values on consumption decisions and personal wealth.