If people believe that their house and investments are going up in value, they will be more willing to spend more, which is good for the economy. However, if they believe that their house and investments are going down in value, they will stop buying things, which is bad for the economy. This is the wealth effect. Ex–Federal Reserve Chairman Ben Bernanke, in his quest to revive the economy and lower the unemployment rate, became enamored with this theory. He used the wealth effect to justify pumping trillions of dollars into the economy via lower interest rates and the printing of money to
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