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Question
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 × 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
Answer
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