Suppose You Put $10 into a Savings Account

question 11

Multiple Choice

Suppose you put $10 into a savings account.A year later the account has $12 in it,all of which you withdraw.The tax rate on accrual is 50% and the tax rate on realization is 25%.How much tax on accrual do you owe? Assume that both taxation on accrual and taxation on realization apply as they do under current U.S.tax policy.

• A) $6
• B) $1
• C) $2
• D) No tax is owed

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Definitions:

Best Response

In game theory, it is the strategy that will give a player the highest payoff, given the strategies chosen by other players in the game.

Simultaneous Game

A type of game in game theory where participants make decisions or select strategies at the same time without knowledge of the others’ choices, exemplified by the Prisoner’s Dilemma.

Shoplifter

An individual who steals merchandise from a retail store.

Best Response

A strategy that yields the highest payoff for a player given the strategies chosen by other players in a strategic interaction or game.