How does a decrease in the tax rate on income earned on saving affect saving, investment, the interest rate, and economic growth?
What will be an ideal response?
One determinant of the amount of household saving is the interest rate or the after-tax rate of return that households earn on the amount that they save. The higher the rate of return, the more the household will save. Individuals care about the rate of return that they earn from saving after taxes. Decreasing the tax rate on income earned from saving will increase the after-tax return from saving.
Since the after-tax rate of return rises for every dollar invested, the supply of loanable funds will increase, shifting the curve for loanable funds to the right. If the supply curve for loanable funds shifts to the right, this will lower the interest rate. As the interest rate declines, more investment projects become profitable. Firms will respond by increasing the amount of investment. This will raise the amount of capital available per worker. As the capital-to-labor ratio increases, so does labor productivity and growth in the economy.
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Refer to the above figure. A price ceiling has been set at P1, and a black market has opened. The equilibrium black market price will be
A) below P1. B) between P1 and P3. C) above P3. D) P2.
In one month, Moira can knit 2 sweaters or 4 scarves. In one month, Tori can knit 1 sweater or 3 scarves. Together, they could produce more output in total if Moira knits only sweaters and Tori knits only scarves
a. True b. False Indicate whether the statement is true or false
Private goods are goods
A. for which the more one person has the less is available for someone else. B. that are produced by the government. C. that carry a price. D. for which price is greater than zero.
Which of the following groups receives the highest wages?
A) high school drop-outs B) college drop-outs C) individuals who complete a bachelor's degree program D) individuals with advanced degrees