Answer:
Consider the following calculations
Explanation:
1. Income in 2000 = $50,000
In 2000
Hatfields save 8% = $50,000*8% =$4,000
McCoys save 10% = $50,000*10% = $5,000
Hatfields consume {[($50,000- $4,000) – ($50,000 - $5,000)] = 1000} i.e. $1000 more than the McCoys
In 2001
25% interest on 4000 = 4000(1+.25) = $5,000
25% interest on 5000 = 5000(1+.25) =$6,250
Total earning for Hatfields = $55,000
Total earning for McCoys =$ 56,250
Hatfields save 8% = $55,000*8% =$4,400
McCoys save 10% = $56,250*10% = $5,625
Hatfields consume { [($55,000- $4,400) – ($56,250- $5,625)] = -25 } i.e. $25 less than the McCoys
1. Income in 2000 = $50,000
In 2010
Hatfields save 8% = $50,000*8% =$4,000
McCoys save 10% = $50,000*10% = $5,000
Hatfields consume {[($50,000- $4,000) – ($50,000 - $5,000)] = 1000} i.e. $1000 more than the McCoys
In 2011
5% interest on 4000 = 4000(1+.05) = $4,200
5% interest on 5000 = 5000(1+.05) =$5,250
Total earning for Hatfields = $54,200
Total earning for McCoys =$ 55,250
Hatfields save 8% = $54,200*8% =$4,336
McCoys save 10% = $55,250*10% = $5,525
Hatfields consume { [($54,200- $4,336) – ($55,250- $5,525)] = 139 } i.e. $139 more than the McCoys
