The household's year one budget constraint is:
A)real assets at the end of year zero plus real income in year one less consumption in year one equals real assets at the end of year one.
B)real income in year one less real assets at the end of year zero less consumption in year one equals real assets at the end of year one.
C)real assets at the end of year zero plus real income in year one plus consumption in year one equals real assets at the end of year one.
D)real income in year one plus consumption in year one less real assets at the end of year zero equals real assets at the end of year one.

Question

Quizplus · Accepted Answer

The correct choice is A because it accurately describes the household's budget constraint: the sum of the initial real assets and the real income earned during the year, minus the consumption for that year, equals the real assets at the end of the year. This equation balances the sources of funds (initial assets plus income) with the uses of those funds (consumption and the accumulation of assets for the next period).

The Household's Year One Budget Constraint Is