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. 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.
A) $1,000; $25 more
B) $2,000; $25 more
C) $1,000; $25 less
D) $2,000; $25 less

Question

Quizplus · Accepted Answer

In 2000, the Hatfields saved 8% of $50,000, which is $4,000. The McCoys saved 10% of $50,000, which is $5,000. Therefore, the Hatfields consumed $1,000 more than the McCoys in 2000.
In 2001, the Hatfields' savings increased by 25%, which is $1,000 (since they saved $4,000 in 2000). Their total savings in 2001 is $5,000. The McCoys' savings increased by 25%, which is $1,250 (since they saved $5,000 in 2000). Their total savings in 2001 is $6,250. 
The Hatfields consumed $25 less than the McCoys in 2001, since their total income (including savings and interest) was $5,250 vs. the McCoys' total income of $6,250.

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