Households, like banks, have balance sheets. Although these assets and liabilities may not be written down in a neat table, they still influence household decision making.

a. We saw in this chapter that for banks, assets are equal to liabilities plus stockholders’ equity. In what sense is this also true for a household? Explain.

b. What kinds of assets might the average household have? Of these, which do you think are the most liquid?

c. How would a one-time loan made to a relative affect a household’s annual balance sheet? What about purchasing a car with cash?