Pigou Effect

The Pigou Effect describes how improvements in overall economic conditions can boost consumer confidence and spending. When prices fall, the real value of people's assets like savings or property increases, making them feel wealthier. This perceived increase in wealth encourages more consumption and investment, which can help stimulate economic growth and reduce unemployment. Essentially, lower prices can create a positive feedback loop: as prices drop, people feel richer and spend more, helping to kickstart economic recovery.