Wealth Effect

Examples of Wealth Effect in the following topics:

• The Slope of the Aggregate Demand Curve

  • Due to Pigou's Wealth Effect, the Keynes' Interest Rate Effect, and the Mundell-Fleming Exchange Rate Effect, the AD curve slopes downward.
  • As a result of Keynes' interest rate effect, Pigou's wealth effect, and the Mundell-Fleming exchange rate effect, the AD curve is downward sloping.
  • In the context of the above discussion on Keynes, Pigou's Wealth Effect underlines the fact that liquidity traps are not sustainable.
  • The simplest way to explain the Wealth Effect is that an increase in spending will denote an increase in wealth.
  • The analysis of interest rates displayed above, through the wealth effect in particular, offsets the negative spiral that could occur as a result of deflation and decreased employment.

• Impacts of Policies and Events on Equilibrium

  • Changes in prices can shift aggregate demand, and therefore the macroeconomic equilibrium, as a result of three different effects:
  • The wealth effect refers to the change in demand that results from changes in consumers' perceived wealth.
  • Since inflation causes real wealth to shrink and deflation causes real wealth to increase, the wealth effect of inflation will cause lower demand and the wealth effect of deflation will cause higher demand.
  • The interest rate effect refers to the way in which a change in the interest rate affects consumer spending.
  • Analyze the effects that events and policies can have on economic equilibrium

• Impact of Income on Consumer Choices

  • The simplest way to demonstrate the effects of income on overall consumer choice, from the viewpoint of Consumer Theory, is via an income-consumption curve for a normal good(see ).
  • The wealth effect differs slightly from the income effect.
  • The wealth effect reflects changes in consumer choice based on perceived wealth, not actual income.
  • As a result, it is useful to outline the differences in income effects on normal, inferior, complementary and substitute goods:
  • Break down changes in consumption into the income effect and the wealth effect

• Social Correlates of Religion

  • There are correlations between the degree of religious belief in society and social factors like mortality rates, wealth and happiness.
  • Keister found that Jewish and Episcopalian adherents attained the most wealth.
  • The researcher suggests that wealth accumulation is shaped by family processes.
  • Another study by Keister found that "religion affects wealth indirectly through educational attainment, fertility and female labor force participation. " The study also found evidence of direct effects of religion on wealth attainment.
  • Some research suggests that both non-religious and religious meaning systems can be quite effective when it comes to managing death anxiety, and that the latter have a few additional advantages.

• Distribution Effects of Inflation

  • Unexpectedly high inflation tends to transfer wealth from creditors to debtors and from the rich to the poor.
  • When inflation is expected, it has few distribution effects between borrowers and lenders.
  • Since it benefits debtors and hurts creditors, in practice unexpected inflation is often a transfer of wealth from the rich to the poor .

• Economic measures

  • GDP and GDP per capita are widely used indicators of a country's wealth.
  • However, a value greater than one may occur if some persons represent negative contribution to the total (e.g., have negative income or wealth).
  • The Gini coefficient was originally proposed as a measure of inequality of income or wealth.
  • For OECD countries, in the late 2000s, considering the effect of taxes and transfer payments, the income Gini coefficient ranged between 0.24 to 0.49, with Slovenia the lowest and Chile the highest.

• Power and Inequality

  • by William Domhoff, the distribution of wealth in America is the primary highlight of the influence of the upper class.
  • The top 1 percent of Americans own around 34 percent of the wealth in the U.S. while the bottom 80 percent own only approximately 16 percent of the wealth.
  • This large disparity displays the unequal distribution of wealth in America in absolute terms.
  • Social inequality refers to relational processes in society that have the effect of limiting or harming a group's social status, social class, and social circle.
  • The upper class is generally contained within the wealthiest 1–2 percent of the population, with wealth passed from generation to generation.

• Growing Gap Between Rich and Poor

  • Economic inequality (also known as the gap between rich and poor, income inequality, wealth disparity, or wealth and income differences) consists of disparities in the distribution of wealth (accumulated assets) and income.
  • The Gini coefficient is a statistical measure of the dispersal of wealth or income.
  • A Gini coefficient of one indicates that all of a group's wealth is held by one individual.
  • Wealth concentration in the hands of a few individuals or institutions;
  • Social scientists and policy makers debate the relative merits and effectiveness of each approach to regulating inequality.

• The Social Problem

  • New social problems emerged from industrialization, threatening to increase unemployment, poverty, and unequal distribution of wealth.
  • Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth was written by Henry George in 1879 and is a treatise on the cyclical nature of an industrial economy and its remedies.
  • It seeks to explain why poverty exists, notwithstanding widespread advances in technology, even where there is a concentration of great wealth such as in cities.
  • In other words, the better the public services, the higher the rent is (as more people value that land).The tendency of speculators to increase the price of land faster than wealth can be produced to pay results in lowering the amount of wealth left over for labor to claim in wages, and finally leads to the collapse of enterprises at the margin, with a ripple effect that becomes a serious business depression entailing widespread unemployment, foreclosures, etc.
  • Henry George proposed a "single tax" that would be leveled on the rich and poor alike, with the excess money collected used to equalize wealth and level out society.

• Distribution of Wealth and Income

  • The distribution of wealth and income reveals inequalities among and within countries and the ways in which wealth is redistributed.
  • The distribution of wealth is a comparison of the wealth of various members or groups in a society.
  • One commonly used method is to compare the wealth of the richest ten percent with the wealth of the poorest ten percent.
  • One form of wealth is land or real estate.
  • Motivations for such limitations on wealth include the desire for equality of opportunity, a fear that great wealth leads to political corruption, the belief that limiting wealth will gain the political favor of a voting bloc, or fear that extreme concentration of wealth results in rebellion.