The household real budget constraint C + ( B/P) + K = ( /P) + (w/P)•L + i•((B/P) + K). shows that in our model:

Question

The household real budget constraint C + (  B/P) +  K = (  /P) + (w/P)•L + i•((B/P) + K). shows that in our model:

Quizplus · Accepted Answer

The household budget constraint includes income from profits (represented by the term (11eb7ff0_af7a_c86d_8992_15ce10b1aa27_TB8790_11 B/P) + 11eb7ff0_af7a_c86e_8992_fb478909d601_TB8790_11 K), in addition to income from labour ((w/P)•L) and interest on bonds and capital (i•((B/P) + K)). This indicates that households can derive income from various sources and are not limited to just labour income. The budget constraint also allows for spending on both consumption (C) as well as investment in bonds and capital, which suggests households can allocate their income to different uses. There is no information provided in the question that suggests households view bonds as riskier than capital, so option D can be ruled out.

The Household Real Budget Constraint C + ( B/P)