The Pigou Effect

question 92

Multiple Choice

The Pigou effect:

• A) suggests that as prices fall and real money balances rise, consumers should feel less wealthy and spend less.
• B) suggests that as prices fall and real money balances rise, consumers should feel wealthier and spend more.
• C) suggests that as prices fall and real money balances rise, consumers should feel less wealthy but spend more.
• D) is generally accepted as adequate proof that the economy must be able to correct itself.