Reference Entry

real balance effect

Edited by John Black, Nigar Hashimzade and Gareth Myles

in A Dictionary of Economics

Fourth edition

Published in print January 2012 | ISBN: 9780199696321
Published online May 2013 | e-ISBN: 9780191759130
real balance effect

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The effect on spending of changes in the real value of money balances. During inflation, as prices rise, the real purchasing power of the money people already hold goes down. This is expected to make people more likely to save and less likely to spend their incomes. With a constant nominal money supply, this should eventually bring inflation to a halt. The ...

Reference Entry.  97 words. 

Subjects: Economics

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