can an expenditure component be negative ExplainSolutionYes

can an expenditure component be negative? Explain

Solution

Yes, it is possible, for consumption expenditure.

In an one-period consumption model, income must be either consumed or saved. Borrowing is not permitted. But in a two-period (or multi-period) consumption model, if a consumer spends more than his income in 1st period, he can borrow the deficit in 1st period. Then, in 2nd period, he must consume less & save more, in order to repay the borrowing of 1st period. So, at end of 2nd period, income again equals consumption plus savings.