If the present value of assets at the end of year two is constant, an increase in the present value of sources of funds must cause:
A)consumption in periods one and two to rise.
B)consumption in periods one and two to fall.
C)consumption to rise in period one and fall in period two.
D)consumption to fall in period one and rise in period two.

Question

Quizplus · Accepted Answer

An increase in the present value of sources of funds means that there is more money available to spend. If the present value of assets at the end of year two is constant, then this means that the extra money must be spent in periods one and two.

If the Present Value of Assets at the End of Year