Question

Falling stock prices ________ household wealth, which ________ consumption spending.

Select one:

decreases; decreases

increases; increases

increases; decreases

decreases; increases

Answer 1

Option 1 - decreases; decreases

Explanation : The stock market fluctuate because the individual stocks that make up the stock market fluctuate. Individual stocks fluctuate based on supply and demand. Fluctuations in stock market can affect the economy by influencing the spending of households and firms. Rising stock prices can lead to increase in household waelth, and so results in increased spending, and falling stock prices can lead to decreased spending. Increases in spending can lead to increases in production and employment while the opposite is true for decreased spending. When stock prices falls, the wealth of the households decreases and decreases their spending.