The Hatfields and the McCoys both earn $50,000 per year in real terms in the labor market, and both families are able to earn a 5% real interest rate on their savings. In the year 2000, both families began to save. The Hatfields saved 8% of their income each year; the McCoys saved 10%. In 2000, the Hatfields consumed ______ more than the McCoys; in 2001, the Hatfields consumed ______ than the McCoys.

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Quizplus · Accepted Answer

In 2000, the Hatfields saved 8% of $50,000, which is $4,000, and consumed $46,000. The McCoys saved 10% of $50,000, which is $5,000, and consumed $45,000. Thus, the Hatfields consumed $1,000 more in 2000. In 2001, the Hatfields' savings grew by 5% to $4,200, and the McCoys' savings grew to $5,250. The Hatfields consumed $46,000, and the McCoys consumed $44,750, so the Hatfields consumed $139 more in 2001.

The Hatfields and the McCoys Both Earn $50,000 Per Year