In the Two-Period Model, Suppose a Household's Income in the First

question 28

Multiple Choice

In the two-period model, suppose a household's income in the first period is $40,000, income in the second period is $50,000, and the real interest rate is 25 percent.The government proposes to give the household a tax rebate of $5,000 in the first period, but will tax the household an additional $5,000 × 1.25 = $6,250 in the second period.The household is _____under the government's tax rebate plan compared with before.

• A)better off
• B)worse off
• C)equally well off
• D)possibly better off and possibly worse off

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Definitions:

Motivate

To provide someone with a reason or incentive to do something.

Sexual Orientation

A person’s sexual identity and the gender(s) to which she or he is attracted.

Legal

Pertains to the system of rules that are created and enforced through social or governmental institutions to regulate behavior.

Ability

The possession of the means or skill to do something or carry out a task effectively.