Retrieving "Keynes Effect" from the archives

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1. Aggregate Demand

   Linked via "Keynes Effect"

   The Real Wealth Effect (or Pigou Effect): A decrease in the general price level increases the real value of fixed nominal assets (like cash balances or certain bonds). Consumers feel wealthier and subsequently increase consumption(C).
   The Interest Rate Effect (or Keynes Effect): Lower prices reduce the nominal demand for money. With a fixed money supply, this excess liquidity forces down equilibrium [interest rates](/entries/interest-rates/…