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 25% real interest rate on their savings.Assume that all interest is paid out as income in the following year.In the year 2010, both families began to save.The Hatfields saved 8% of their income each year; the McCoys saved 10%.In 2010, the Hatfields consumed ______ more than the McCoys; in 2011, the Hatfields consumed ______ than the McCoys.
A)$1,000; about $800 more
B)$2,000; about $250 more
C)$1,000; about $800 less
D)$2,000; about $250 less

Question

Quizplus · Accepted Answer

In 2010, the Hatfields saved 8% of $50,000, which is $4,000, consuming $46,000. The McCoys saved 10%, which is $5,000, consuming $45,000. Thus, the Hatfields consumed $1,000 more in 2010. In 2011, the Hatfields' savings grew by 25% to $5,000, and the McCoys' savings grew to $6,250. The Hatfields consumed $46,000 + $5,000 = $51,000, and the McCoys consumed $45,000 + $6,250 = $51,250. Thus, the Hatfields consumed about $800 more in 2011.

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