Consumer economics

The table lists rent as $980, and paragraph 1 says Dana's take-home pay is $2,800 per month.

1. Part ÷ whole: 980 ÷ 2,800 = 0.35.
2. Change to a percent: 0.35 × 100 = 35%.

So rent takes 35% of her take-home pay. A common guideline says housing should take no more than about 30% of income, so Dana's rent is a little high for her pay—useful context, but the question only asks for the percent.

Tip: "What percent of A is B?" always means B ÷ A. Be sure you divide by the whole (here, take-home pay), not by another part or by the total of the budget.

Paragraph 2 says: "A variable expense changes from month to month." In the table, the items marked Variable are utilities, groceries, and entertainment and eating out.

Only one answer choice is in that group: groceries. Grocery bills go up or down depending on what you buy and how many meals you eat at home. Rent, the phone plan, and the savings deposit are labeled Fixed—they stay the same each month.

Tip: fixed expenses are hard to cut quickly (you signed a lease or a contract). Variable expenses are where most people find savings when a budget is tight, which is why GED questions often ask which category to cut.

Paragraph 4 says the Okafors count "rent, utilities, groceries, car insurance, gasoline and child care as needs."

1. Add the six needs from the table: 1,450 + 190 + 620 + 140 + 210 + 520 = 3,130.
2. Divide by take-home pay (paragraph 1: $4,300): 3,130 ÷ 4,300 ≈ 0.728.
3. Convert to a percent: about 73%.

So about 73% of their take-home pay goes to needs, well above the 50 percent the 50/30/20 guideline suggests.

Check: rent alone is 1,450 ÷ 4,300 ≈ 34%, and needs include much more than rent, so an answer near 73% makes sense.

Tip: in a budget percent question, the "whole" is the income the question names (take-home pay), and the "part" is only the rows the question asks about.

Read the 20-year column of the table (the graph shows the same points):

• Compound interest balance: $16,036
• Simple interest balance: $11,000

16,036 − 11,000 = 5,036

The compound account has about $5,036 more. Why? Simple interest pays 6% of the original $5,000 = $300 every year, so it grows by the same amount each year (a straight line). Compound interest pays 6% of the growing balance, so each year's interest is larger than the last (an upward curve).

Tip: on a two-line graph, the question "how much more" means subtract the two values at the same x-value. Do not subtract a value from a different year.

Paragraph 4 gives the method: "The total amount repaid equals the monthly payment times the number of months. Total interest is the total repaid minus the amount borrowed."

1. Total repaid on Loan B: 306.02 × 72 = 22,033.44.
2. Total interest: 22,033.44 − 18,000 = 4,033.44.

She will pay about $4,033 in interest. Compare Loan A: 530.63 × 36 = 19,102.68, so interest is only $1,102.68. The lower monthly payment of Loan B costs her nearly $3,000 extra because of the higher APR and the longer term.

Tip: a lower monthly payment is not the same as a cheaper loan. Always compare the total cost (payment × number of payments).

The graph shows payment history is the largest factor at 35% of the score, and paragraph 3 says it "records whether bills were paid on time." So consistently paying every bill on time affects the biggest part of the score.

Why not the others? Applying for several new cards affects new credit (only 10%) and usually lowers the score for a while. Closing the oldest card can lower the score, as paragraph 3 says. Checking your own report is allowed by law (paragraph 4) and does not raise the score by itself.

The answer is paying every bill on time, every month.

Tip: when a question asks about the "most" effect, look for the largest value on the graph, then make sure the action actually moves that factor in the right direction.

Use the "Compound interest balance" row of the table.

1. Balance after 20 years with compounding: $5,306.60.
2. Interest = balance − original deposit = 5,306.60 − 2,000.00 = 3,306.60.

Wen earns $3,306.60 in interest.

Compare: with simple interest, she would earn only 4,000 − 2,000 = $2,000. Compounding earns her $1,306.60 more because each year's interest also earns interest.

Check: with simple interest, each year earns 5% of $2,000 = $100, so 20 years earn $2,000. Compound interest must be more than that, and $3,306.60 is.

Tip: read whether the question asks for the balance (total in the account) or the interest (only the money earned). Many wrong answers are the right number for the other question.

Paragraph 1 says the Fair Credit Billing Act "lets credit card users dispute billing errors, such as a charge for something never delivered." Deshawn's problem is exactly that: a card charge for boots that never arrived. He must send a written dispute "within 60 days after the statement with the error was sent."

Why not the others:

• The Fair Credit Reporting Act covers wrong information on a credit report, not a wrong charge on a bill.
• The Equal Credit Opportunity Act is about discrimination in lending.
• The Cooling-Off Rule covers canceling certain sales made at the buyer's home, not online orders that never arrive.

The answer is the Fair Credit Billing Act.

Tip: many consumer laws have similar names. Match the kind of document in the problem (bill, credit report, loan application) to the law that names it.

A fact can be checked: a fee amount, a due date, an APR or how long approval takes can be compared with the loan contract or tested. An opinion is a judgment that people could disagree about.

• "Borrow $400 today — just a $60 fee!" — the loan amount and fee can be checked against the contract (the word "just" adds spin, but the numbers are facts).
• "Approval in 15 minutes." — this can be timed.
• "APR 391%." — a stated, checkable number required by law (paragraph 2).
• "QuickCash is the smartest way to handle any emergency!" — "smartest" is a judgment, and "any emergency" is an absolute claim. This is an opinion.

The answer is "QuickCash is the smartest way to handle any emergency!"

Tip: words like best, smartest, easiest, worst and absolutes like any, always, never are signals of opinion or exaggeration in ads.

Net pay is what is left after all deductions.

1. Gross pay: 736.00 + 165.60 = 901.60.
2. Add every deduction on the stub: 68.00 + 55.90 + 13.07 + 27.05 + 9.50 + 12.00 = 185.52.
3. Net pay: 901.60 − 185.52 = 716.08.

Tanisha's net pay is $716.08.

Check: about 20.6% of her gross pay is deducted (185.52 ÷ 901.60), which is a typical share for a worker at this pay level.

Paragraph 2 says the dental premium and union dues are not taxes—but they are still deductions, so they still come out of her check.

Tip: "not a tax" does not mean "not subtracted." Net pay = gross pay − every deduction line.

Paragraph 1 defines the two methods. Simple interest is paid "only on the original $2,000," so it adds the same $100 every year (2,500 → 3,000 → 3,500 → 4,000: +$500 every 5 years).

With compounding, "each year's interest is added to the balance and earns interest too." So the yearly interest itself grows: 5% of a bigger balance each year. The compound row rises by $552.56, then $705.23, then $900.07, then $1,148.74 in each 5-year block—faster every time.

So the gap widens because compound interest earns interest on past interest, while simple interest earns only on the $2,000 deposit.

The rate (5%) and the deposit ($2,000) are the same for both rows, so they cannot explain the difference.

Tip: when two rows start the same and spread apart, look for what differs in how each row is calculated—here, what the 5% is applied to.

Paragraph 1 lists the factors. Closing the old card affects two of them:

• Length of credit history (about 15%): her oldest account is the 11-year-old card (table). Closing it makes her credit history look shorter, which can lower her score.
• Amounts owed (about 30%): her utilization depends on total limits. If that card's limit is lost, the same $600 balance is divided by a smaller total, so her utilization ratio goes up.

Her payment history (100% on time) does not change.

So the most likely result is that her score could go down, because her credit history becomes shorter and her utilization ratio may rise.

Tip: on the GED, apply each factor in the passage to the action described. "I don't use it, so closing it can only help" is a common real-life mistake—and a common distractor.

Paragraph 2 explains that the APR "shows the yearly cost of credit" and "lets shoppers compare a payday loan with other kinds of credit." It also notes that "Many credit cards charge APRs between about 20 and 30 percent."

The fine print says the QuickCash loan has an APR of 391%—roughly 13 to 20 times the typical credit card APR. That is the strongest evidence that the loan is not low-cost.

Why the others are weaker:

• "No credit check" and "Approval in 15 minutes" describe convenience, not cost.
• "Pay it all back in 2 weeks" is about timing. The short term actually makes the $60 fee very expensive when stated as a yearly rate.

Tip: to judge whether something is "cheap" or "expensive," find a number that allows a fair comparison. For credit, that number is the APR.

Use the table in paragraph 3 and the definitions in paragraph 1 (premium, deductible, then 20% coinsurance).

Plan A

• Premiums: 12 × $150 = $1,800
• Deductible: $500
• Coinsurance: 20% × (6,000 − 500) = 0.20 × 5,500 = $1,100
• Total: 1,800 + 500 + 1,100 = $3,400

Plan B

• Premiums: 12 × $90 = $1,080
• Deductible: $2,500
• Coinsurance: 20% × (6,000 − 2,500) = 0.20 × 3,500 = $700
• Total: 1,080 + 2,500 + 700 = $4,280

4,280 − 3,400 = 880, so Plan A costs $880 less. Plan B's low premium only wins in a year with few medical bills (with no bills at all, Plan B costs $1,080 and Plan A $1,800).

Tip: when comparing insurance, add up all the costs for a realistic year. Do not choose on the premium alone.

Paragraph 2: "Social Security and Medicare taxes are together called FICA taxes. For every dollar of FICA tax withheld from a worker's pay, the employer pays a matching dollar of its own."

1. Tanisha's FICA withholding: Social Security $55.90 + Medicare $13.07 = $68.97.
2. Employer's matching share: another $68.97.
3. Total FICA paid: 68.97 × 2 = $137.94.

The answer is $137.94.

Income taxes (federal $68.00, state $27.05) are not FICA and are not matched. The dental premium and union dues are not taxes at all.

Check: FICA is 6.2% + 1.45% = 7.65% from each side, so 15.3% in total: 0.153 × 901.60 ≈ 137.94. ✓

Tip: read every word of the question—"counting both" means you must add the part the passage says the employer pays.

For each choice, Andre's yearly cost = premium + the deductible he pays on the claim (the $2,400 damage is more than every deductible, so he pays the full deductible and the insurer pays the rest).

The $250 deductible costs least ($1,630) in a year with one claim.

Note the trade-off: in a year with no claims, the $1,000 deductible is cheapest ($1,020 premium only). A low deductible is like paying extra up front for protection you expect to use.

Tip: in insurance comparisons, never compare premiums alone. Total cost = premium + what you pay out of pocket for the losses in the scenario.

Paragraph 2 says "the total cost is the payment times the number of payments."

• Rent-to-own: 25 × 78 = $1,950, which is $750 more than the $1,200 cash price.
• Credit union loan: 106.62 × 12 = $1,279.44, only $79.44 more than cash.
• Saving first: $1,200 total, but she waits 8 months.

So the best-supported conclusion: the low weekly payment hides a total cost about $750 above the cash price, much more than the credit union loan.

The sign's claims are technically true—she does take it home today and pays $25 a week—but the word "Only" draws attention away from the 78 payments.

Tip: when an ad stresses a small payment ("only $25 a week," "pennies a day"), the GED often asks what the total cost reveals. Multiply it out and compare with the cash price.

Saving first takes 8 months, so it does not work for her. Compare the two options that get her the laptop now, using paragraph 2 (total cost = payment × number of payments).

1. Rent-to-own: 25 × 78 = $1,950.00.
2. Credit union loan: 106.62 × 12 = $1,279.44.

The credit union loan is cheaper by 1,950.00 − 1,279.44 = $670.56. Its interest cost is only 1,279.44 − 1,200 = $79.44.

The answer is the credit union loan, $1,279.44 in all.

Check: a 12% APR on a loan that is paid down month by month should cost well under a full year's 12% of $1,200 ($144). $79.44 fits.

Tip: in a "best option" problem, first cross out any option that breaks the condition in the question (here, timing). Then compare totals, not monthly payments.

Step 1 — monthly amount needed. They still need 9,000 − 1,800 = 7,200 (paragraph 3). Over 12 months: 7,200 ÷ 12 = $600 per month. They save $300 now, so they need $300 more each month.

Step 2 — money available. Take-home pay is $4,300 and planned spending and saving total $3,795, so $505 is left over each month.

Step 3 — test the plans:

• Move $300 of the $505 leftover into savings: new total spending + saving = 3,795 + 300 = 4,095, which is under $4,300. ✓ This works.
• Raise savings to $900: they would need $600 more, but only $505 is free—over budget, and it saves more than needed.
• Cutting streaming and the gym frees only $105, not $300.
• Keeping $300 a month takes 24 months, not 12.

The answer is adding $300 a month from their leftover money, for $600 a month in savings.

Tip: for a work-backwards goal, find the required monthly amount first, then check each plan against both the goal and the budget limit.

Paragraph 1 defines the ratio: "card balances divided by total card limits." The table gives Luis's balance ($4,200) and limits ($6,000), so his ratio is now 4,200 ÷ 6,000 = 70%.

1. Target balance: 30% of $6,000 = 0.30 × 6,000 = $1,800.
2. Pay-down needed: 4,200 − 1,800 = $2,400.

Luis must pay down $2,400.

Check: 1,800 ÷ 6,000 = 0.30 = 30%. ✓

Common errors: taking 30% of the balance (0.30 × 4,200 = 1,260) instead of the limit, or stopping at the target balance ($1,800) instead of finding the amount to pay.

Tip: in work-backwards percent problems, find the target first (percent × the whole), then subtract to find the change.

Step 1 — new gross pay (paragraph 1 rates):

• Regular: 40 × 18.40 = 736.00
• Overtime: 10 × 27.60 = 276.00
• Gross: 736.00 + 276.00 = 1,012.00

Step 2 — FICA withholding (rates from the stub):

• Social Security: 0.062 × 1,012.00 = 62.744 ≈ 62.74
• Medicare: 0.0145 × 1,012.00 = 14.674 ≈ 14.67
• Total withheld: 62.74 + 14.67 = 77.41

The answer is $77.41.

The employer's matching share (another $77.41) is not withheld from her pay, so it is not included.

Check: 7.65% × 1,012 ≈ 77.42; rounding each tax separately gives 77.41, so the answer is consistent.

Tip: when hours change, recompute gross pay first—every percent-based deduction depends on it.

The budget in the passage lists a $75 credit card minimum payment; the stem gives the balance and APR.

1. Monthly rate: 22% ÷ 12 ≈ 1.833% = 0.01833.
2. This month's interest: 3,000 × 0.01833 ≈ $55.
3. The rest of the payment reduces the balance: 75 − 55 = $20.

So about $55 goes to interest and only about $20 reduces the balance. At this pace the debt would take many years to pay off. Moving part of Dana's $305 surplus to the card would shrink the balance much faster.

Tip: APR is a yearly rate. Divide by 12 for one month. Watch for answer choices that reverse the two parts or apply the rate to the payment instead of the balance.

Paragraph 2 gives the rules: a $1,500 deductible, then 20% coinsurance, but "Once Andre's deductible and coinsurance payments reach $4,000 in a year, the plan pays 100 percent."

1. Deductible: Andre pays the first $1,500.
2. Remaining bill: 30,000 − 1,500 = 28,500. Coinsurance at 20%: 0.20 × 28,500 = 5,700.
3. Without a cap he would owe 1,500 + 5,700 = 7,200.
4. But 7,200 is more than the $4,000 out-of-pocket maximum, so his payments stop at $4,000.

Andre pays $4,000; the plan pays 30,000 − 4,000 = $26,000.

Check: his share (4,000) + the plan's share (26,000) = 30,000. ✓

Tip: in health-plan problems, the out-of-pocket maximum is the last step. Always compare your total with the cap—large bills almost always hit it.