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A good example of the real-balances effect is when your favorite pizza place offers a two-for-one pizza deal.
The impact of changes in the real value of money balances on spending. As prices rise during an inflationary period, the real purchasing power of the money that people already possess decreases. People should become more inclined to conserve money and less inclined to spend it as a result of this.
What exactly is the real-balances effect?
The purchasing power of the public's amassed savings decreases as prices rise.
Who had developed the idea of a true balance effect?
The following presumptions serve as the foundation for Don Patinkin's true balance effect theory: The actual magnitudes of economic variables could not be altered by money.
What is a real-balance effect implication?
As prices rise, the portion of your wealth that you keep in cash depreciates somewhat. Growth in total supply has lagged behind growth in total demand.
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