Question

As a result of the wealth effect, a sudden increase in the value of stock will cause households that hold a significant amount of stock assets to_________.

Answer 1

Increase consumption and reduce saving.

Step-by-step explanation:

Saving is that portion of revenue that may not be planned to spend on current consumption. The saving-income partnership is considered saving-function. Put it simply, saving purpose or tendency to save refers the saving level to level of income.

• The role of spending is a connection between the total disposable income and actual usage.

• It is meant as a concise overview of domestic behavior, reflecting the concept of smoothing use.

• The consumer function is typically assumed to be upward-sloping, but it has a slope of less than one.