According to the wealth effect, when prices decrease, the purchasing power of assets:

Question

decreases and consumption decreases

increases and consumption decreases

decreases and consumption increases

increases and consumption increases

Answer 1

According to the wealth effect, when prices decrease, the purchasing power of assets typically increases, as the same amount of money can buy more goods and services. Consequently, this increase in purchasing power can lead to an increase in consumption. Therefore, the correct answer is:

increases and consumption increases.