A significant boom in the stock market is likely to have which of the following effects?

A significant boom in the stock market tends to increase aggregate demand due to the wealth effect. When stock prices rise, it generally increases the wealth of individuals and businesses who hold stocks. This perceived increase in wealth can lead to higher consumer spending as individuals feel more financially secure and may invest in bigger purchases or services, driving overall demand in the economy. Additionally, businesses may feel more confident and increase their investment spending due to favorable market conditions, further contributing to a rise in aggregate demand.

This phenomenon demonstrates how financial markets can influence economic activity through changes in consumer and business confidence, which directly impacts spending behavior. Such a shift in aggregate demand is essential for understanding how broader market movements can have significant implications on the overall economy.