Your Friend Scotty Informs You That He Received a "Tax-Free

question 15

Multiple Choice

Your friend Scotty informs you that he received a "tax-free" reimbursement in 2012 of some medical expenses he paid in 2011.Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?

• A)Scotty itemized deductions in 2011.
• B)Scotty did not itemize deductions in 2011.
• C)Scotty itemized deductions in 2012.
• D)Scotty did not itemize deductions in 2012.
• E)Scotty itemized deductions in 2012 but not in 2011.

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Definitions:

Foreign Exchange

The conversion or trading of one currency into another currency.

Federal Budget Deficit

The financial shortfall when a government's expenditures exceed its revenues within a given fiscal year.

Aggregate Demand

The total demand for goods and services within an economy at a given overall price level and in a given time period.

Equilibrium Level

Equilibrium level refers to the state in an economy or market where supply equals demand, so there is no tendency for change.