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wealth effect


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The effect of an increase in the total wealth of an individual upon the level of expenditure. It is generally expected that an individual with a higher value of net assets will spend a larger proportion of current income, and save less, than somebody with the same income but lower value of net assets. It is also expected that an individual with a higher value of net assets will hold more money balances relative to income than somebody with a lower value of net assets.

Subjects: Economics.


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