In the Two-Period Model, Suppose a Household's Income in the First

Multiple Choice

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 × 1.25 = $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