During 2012, Sean's consumption equals $25,000 and the change in his net worth is -$5,000. Sean's economic income for 2012 is

Question

Quizplus · Accepted Answer

Economic income (EI) can be calculated as:

EI = consumption - change in net worth

Substituting the given values, we get:

EI = $25,000 - (-$5,000)
EI = $30,000

However, since the change in net worth is negative (-$5,000), it means that Sean's financial position has worsened during the year despite his consumption. Therefore, his economic income for 2012 is actually lower than his consumption, and can be calculated as:

EI = $25,000 - (-$5,000)
EI = $25,000 + $5,000
EI = $20,000

Hence, the best choice is B.

During 2012, Sean's Consumption Equals $25,000 and the Change in His