Taylor has the following assets and liabilities: Suppose that Taylor receives a $10,000 bonus from her employer. If she puts that money toward her mortgage, her wealth would ______; if she puts that money in her checking account, her wealth would ______.
A) increase to $121,000; decrease to $101,000
B) increase to $115,000; decrease to $95,000
C) increase to $121,000; increase to $121,000
D) increase to $115,000; increase to $115,000

Question

Taylor has the following assets and liabilities:  Suppose that Taylor receives a $10,000 bonus from her employer. If she puts that money toward her mortgage, her wealth would ______; if she puts that money in her checking account, her wealth would ______.
A) increase to $121,000; decrease to $101,000 
B) increase to $115,000; decrease to $95,000 
C) increase to $121,000; increase to $121,000 
D) increase to $115,000; increase to $115,000

Quizplus · Accepted Answer

In both cases, Taylor is saving her entire $10,000 bonus, so her wealth increases by $10,000. Note that increasing assets and decreasing liabilities have the same effect on wealth. Her initial wealth was $111,000 so her new wealth is $121,000.

Taylor Has the Following Assets and Liabilities: Suppose That