Shulk's current income is $200 more per month than his current consumption needs. He decides to use $150 to reduce his credit card debt, while he puts the remaining $50 in a piggy bank. As a result, his saving will not change and his net worth will increase by $150

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BlackTom AI · Accepted Answer

Question restatement: Shulk earns $200 more per month than his current consumption needs. He allocates $150 to pay down his credit card debt and puts the remaining $50 into a piggy bank. The prompt claims that as a result, saving will not change and net worth will increase by $150.

Option A: 'increase by $200'.
- Why this is incorrect: The scenario involves two moves that affect assets and liabilities. Paying $150 toward debt reduces liabilities by $150 but also reduces assets (cash) by $150, leaving net worth unchanged by that action. Depositing $50 into a piggy bank increases assets by $50 with no change in liabilities, so saving increases by $50 and net worth increases by $50, not $200. Therefore, claiming an increase of $200 for saving or net worth misstates the actual accounting effects.

Option B: 'increase by $200' (the same text).
- Why this is incorrect: Reiterating the same incorrect value does not change the reasoning. The correct accounting impact remains that saving increases by $50 and net worth increases by $50, not by $200, making this option equally incorrect.

Additional context to clarify the correct reasoning (outside the provided options): When you pay down a debt with cash, you reduce both cash (asset) and debt (liability) by the same amount, which leaves net worth unchanged by that specific transaction. When you save $50 by putting it into a piggy bank, you increase assets by $50 with no corresponding increase in liabilities, so net worth rises by $50 and saving increases by $50. The overall net change in net worth for the month would be $50, not $150 or $200, and saving would increase by $50 rather than remaining unchanged.

ECO102H1 S LEC0101 Week 5 Quiz - Saving and Investment

Shulk's current income is $200 more per month than his current consumption needs. He decides to use $150 to reduce his credit card debt, while he puts the remaining $50 in a piggy bank. As a result, his saving will not change and his net worth will increase by $150

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