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Extensive discussion of the "wealth effect"

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There has been extensive discussion of the "wealth effect." The argument goes that inflated stock values were partially responsible for the strong U.S. economy of the 1990's. Explain this linkage in words and then illustrate with an Aggregate Demand/Aggregate Supply diagram.

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The response addresses the query posted in 624 words with APA references

//The following discussion is about the wealth effect, which was given by Pigou in the theories of economics. During the era of the 1990s, the US economy became one of the strongest economies of the world because of the wealth effect created as a result of the inflated stock values. The same concept has been elaborated and depicted through the context of aggregate demand and aggregate supply.//
Inflated stock values were partially responsible for the strong US economy of the 1990s. This is because of the application of wealth effect. As per the economic law, the wealth effect is defined as a change in the spending, which is accompanied by a change in estimated wealth. When the wealth effect is positive, spending tends to change in the same direction as the estimated wealth (Brenner, 2002). The assumption regarding this states that a rise in the value of stock portfolios as a result of escalating stock ...

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An extensive discussion of the wealth effect is examined. The response addresses the query posted in 624 words with APA references.

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