This year, barney and betty sold their home (sales price $570,000; cost $156,000). all closing costs were paid by the buyer. barney and betty owned and lived in their home for 18 months. assuming no unusual or hardship circumstances apply, how much of the gain is included in gross income?

multiple choice

none of the choices are correct.

$208,000.

$34,000.

incorrect

$190,000.

$414,000.

The answer is: None of the choices are correct.

Explanation:

In order for Barney and Betty to qualify for a tax break on the money they made by selling the house ($570,000 - $156,000 = $414,000) they should have lived and owned that house for at least two years, if not consecutively, they can include time owned and lived during the last five years.

If they are married and file a joint return they could have requested a $500,000 tax break, if they filed separately then only $250,000.  

Also, the income the made from the house ($414,000) counts as capital gains, not gross income.

The new equilibrium combination will be at increases I1 to I2, S1 to S2, and r1 to r2.

Explanation:

Saving or national saving of an economy is amount  of national income or gross domestic product (GPD) that is not spent by the government. Using a simple example of a closed economy, i.e. an economy with no foreign trade in terms and imports, this statement can be mathematically as follows:

Y = C + I + G (1)

Where,

Y denotes national income (GDP), C denotes consumption, I denotes Investment, and G denotes government spending.

To get investment, equation (1) can be rewritten by making I the subject of the formula as follows:

I = Y - C - G (2)

In economics, saving (S) is always equal to investment (I). Therefore, equation (2) can be rewritten by equating it with I as follows:

I = Y - C - G = S

I = S

Both I and S can be written as initial saving (S1) and initial Investment (I1), and we therefore have

I1 = S1 (3)

Equation (3) is an equilibrium E which implies that Investment (I1) is equal to saving (S1) at the initial real interest rate (r1). Real interest here denotes the price for saving and investment.

Since saving of an economy is amount  of national income or GDP that is not spent by the government, a cuts in the government spending will cause saving to rise, i..e. to S2. Since saving and Investment is always equal to investment, Investment will also rise, i.e. to S2. Increase in I1 to I2 and also in S1 to S2, will cause the real interest rate to rise to r2 at E2 which is the new equilibrium combination of real interest rate, saving, and investment

Therefore, the new equilibrium combination of real interest rate, saving, and investment if the government cuts spending, holding other factors constant, will be at increases in I1 to I2, S1 to S2, and r1 to r2.