Households, continued

• Households, of course, cannot keep buying goods, saving money, and paying taxes unless they have a steady in-flow of money. Households have two primary in-flows of money:

• Income from selling the use of household-owned resources in the factor market. Typically what is sold is labor or the use of land or money. This income flow is made up of wages, profits, interest, and rent. If wages, profits, interest, and rent are totalled together, it is called “income”. The total number for the nation is called national income.

• Government Transfers are another source of money in-flow for some households. The largest of such transfers is social security benefit payments.

• Households face a budget constraint. In other words, these three outflows (C, S, & T) must equal the inflows (Income + Transfers) over the long-run. In the very short-run, it’s possible for outflows to exceed inflows, but when that happens the households must spend their wealth. Eventually they run out of wealth to spend (a phenomenon you may be familiar with).