wealth effect
(WELTH uh.fekt; TH as in thin)
n.
An increase in consumer spending based on the perceived wealth created by the escalating value of stock market portfolios.
Example Citation:
Big portfolio gains by investors in recent years have created what economists call the "wealth effect," which has boosted consumer spending, the single biggest factor that has driven the US economy. The "wealth effect" means simply that when investors feel more secure about their wealth, they spend more.
—Kimberly Blanton, "Market economy," The Boston Globe, October 25, 1998
Earliest Citation:
There is still further indirect evidence that the market plays an important role in current consumption. Economists were initially baffed as to why the 10% tax in 1968 failed to damp consumer spending. The "wealth effect" seems to offer a reasonable explanation. While disposable income fell as a result of tax, wealth was rising sharply as the stock market moved up. Undaunted, consumers continued on their spending spree.
—"How sagging stocks depress the economy," Business Week, January 27, 1975
