Which of These BEST Illustrates the Wealth Effect

question 148

Multiple Choice

Which of these BEST illustrates the wealth effect?

• A) Jacob saved $25,000, which he put in the stock market. The market suddenly did very well, and though Jacob is not yet aware of it, his stock portfolio value rose to $36,000.
• B) Simon felt he needed at least $800,000 to retire comfortably. He increased his savings to build up his wealth.
• C) The Jones family has $50,000 in the bank. But when prices rose dramatically, their purchasing power diminished by $50,000.
• D) Margaret had her savings in Treasury bonds. She thought that stocks might offer her a better opportunity to increase her wealth, so she sold her bonds to buy stocks.

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Definitions:

Impression Management

Strategies individuals or organizations use to influence the perceptions of others, often to appear more favorable or competent.

Personal Attributes

Characteristics or qualities that define an individual's personality and behavior.

Fundamental Attribution Error

Overestimates internal factors and underestimates external factors as influences on someone’s behaviour.

Self-Serving Bias

Self-serving bias explains personal success by internal causes and personal failures by external causes.