Think back on the collateral constraint model we learnt in class, in which individuals can only run a business up to a size allowed by their own savings. The main use of the model was to discuss wealth inequality, as opposed to income inequality.

Which of the following descriptions of how the model captures the difference between income and wealth concentration are true? *Suppose that abilities do not change over time.

Question 5 Select one or more:

a. Adding a collateral constraint makes high ability individuals save disproportionately more, so wealth becomes more concentrated than income.

b. There can never be people who earn high incomes but are poor in terms of wealth.

c. Some of the highest ability people may start a business and earn high incomes, even if they are born very poor.

d. Some of the lowest ability individuals can still generate very high incomes, if they are born with high enough wealth.

e. Some people may earn high income as an entrepreneur, but eventually spend so much that they become poor in terms of wealth.