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RE: Wealth Effect and Recessions
I agree with you about the wealth effect. People definitely spend more when their wealth increases, and spend less when their wealth declines. And the results of declining wealth you broke down in details. Nice publication.
Thank you @greatideas.
I think the wealth effect has been underestimated. Governments specifically use the wealth effect, by making credit less expensive, to boost the economy.
There is also a hope by monetary and fiscal policy makers that by making credit less expensive, thereby increasing economic activity, so incomes rise…people and governments would put themselves in a better financial position, which doesn't happen in most cases, because debts most of the time increase faster than incomes.