The LRBC dictates that if initial wealth equals zero:
A) present value of GDP (Q) = present value of C (GNE).
B) present value of GDP (Q) = present value of TB.
C) present value of TB = present value of C (GNE).
D) present value of TB = 0 = present value of GDP (Q) - present value of C (GNE).

Question

Quizplus · Accepted Answer

LRBC states that present value of TB equals zero if the initial wealth equals zero. Therefore, according to the equation of national income accounting, the present value of GDP (Q) minus the present value of consumption (GNE) must also equal zero. Thus, the correct option is D, which states that the present value of TB is equal to zero, and the present value of GDP (Q) minus the present value of consumption (GNE) is also equal to zero.

The LRBC Dictates That If Initial Wealth Equals Zero