If the value of initial assets increases, then a household will change consumption or present value of asset at the end of period 2 due to an income effect.

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Quizplus · Accepted Answer

When the value of initial assets increases, the household's total wealth increases, which can cause an income effect. This means that the household may choose to consume more in period 2, or they may choose to hold onto their assets for longer and consume less in period 2. The specific change in consumption or present value of assets at the end of period 2 will depend on the individual household's preferences and priorities.

If the Value of Initial Assets Increases, Then a Household