Definition of wealth
the abundance of valuable resources or material possessions. An individual, community, region or country that possesses an abundance of such possessions or resources is known as wealthy
Examples of wealth in the following topics:
- Since it benefits debtors and hurts creditors, in practice unexpected inflation is often a transfer of wealth from the rich to the poor .In general, this means that those with savings in the form of currency or bonds lose money from inflation.
- Unexpectedly high inflation tends to transfer wealth from creditors to debtors and from the rich to the poor.
- Redistribution of WealthUnexpected inflation redistributes wealth from creditors to debtors.
- When prices are rising quickly, people will buy durable and nonperishable goods quickly as a store of wealth, to avoid the losses expected from the declining purchasing power of money.
- The costs of inflation include menu costs, shoe leather costs, loss of purchasing power, and the redistribution of wealth.
- 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.Keynes’ Interest Rate EffectThe critical point from Keynes's perspective on the slope of the aggregate demand curve is that interest rates affect expenditures more than they affect savings.
- A vertical IS curve or a horizontal LM curve would essentially negate the way in which interest rates could affect aggregate demand.Pigou's Wealth EffectIn 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.
- Due to Pigou’s Wealth Effect, the Keynes’ Interest Rate Effect, and the Mundell-Fleming Exchange Rate Effect, the AD curve slopes downward.
- 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.
- The sensitivities related to social welfare has continued the argument specific to the use of GDP as a economic growth or progress metric.Austrian School economist Frank Shostak has noted: "The GDP framework cannot tell us whether final goods and services that were produced during a particular period of time are a reflection of real wealth expansion, or a reflection of capital consumption.
- In reality, however, the building of the pyramid will divert real funding from wealth-generating activities, thereby stifling the production of wealth."
- GDP per capita is calculated by dividing GDP by the total population of the country.GDP per capita income as a measure of prosperity GDP per capita is often used as average income, a measure of the wealth of the population of a nation, particularly when making comparisons to other nations .
- It is easily calculated from readily-available GDP and population estimates, and produces a useful statistic for comparison of wealth between sovereign territories.
- Equitable distribution of income and wealth among the economy's participants.
- This does not, however, mean that income and wealth are the same for everyone.Increasing Productivity over time throughout the national economy.To achieve these goals, macroeconomists develop models that explain the relationship between factors such as national income, output, consumption, unemployment, inflation, savings, investment and international trade.
- Classical economics focuses on the growth in the wealth of nations and promotes policies that create national expansion.
- During this time period, theorists developed the theory of value or price which allowed for further analysis of markets and wealth.
- These differences in quantity reflect the increase or decrease an a given individual's purchasing power, thus the income effect could be summarized as the increase in relative utility captured by a consumer with more monetary power.The wealth effect differs slightly from the income effect.
- The wealth effect reflects changes in consumer choice based on perceived wealth, not actual income.
- The aggregate demand curve is downward sloping but in variation with microeconomics, this is as a result of three distinct effects: the wealth effect, the interest rate effect and the exchange-rate effect.
- The wealth effect is specifically related to the value of assets; market participants will adjust consumption in-line with their perception of the appreciation or depreciation of held assets (a home; equity investments, etc.).