Consider the following four investors. Rank each according to who has the most to gain from investing in 30-year tax-exempt municipal bonds. Each investor has $1,000 in a savings account that he/she plans to use to buy bonds. Explain briefly why you ranked the investors this way.(a) A 20-year old college student who earns low income through working over summers and breaks. The student plans to graduate next year.(b) The CEO of a large company who is currently in the highest tax bracket.(c) A middle-income household saving up to move into a larger home.(d) A 60-year old nurse who plans to retire at age 62. He uses a tax-exempt pension fund for all of his savings.
What will be an ideal response?
(b), (c), (a), (d)
The CEO has the most to gain because she is in the highest marginal tax break. Therefore, she would receive the largest benefit from investing in tax-exempt bonds. Similarly, the middle- income family will benefit, but their savings will not be as significant as those of the CEO. The 20-year old college student earns low income, so her tax savings are relatively low. Finally, the nurse will receive no benefit from purchasing a tax-exempt bond because he uses a tax-exempt pension to purchase his assets. Therefore, he saves nothing from buying a tax-exempt bond in lieu of a taxable bond.
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Cyclical unemployment results from
A. technological change. B. the decreasing relative importance of goods and the increasing relative importance of services in the U.S. economy. C. a deficiency of spending on goods and services. D. the everyday dynamics of a free labor market, with workers voluntarily changing jobs.
Which of the following would be most likely to cause an appreciation of the dollar relative to foreign currencies?
a. higher domestic interest rates b. a reduction in the rate of inflation abroad c. a shift to a more expansionary monetary policy d. rapid growth of income in the United States
The CPI was 154 in one year and 165 the following year. How much did prices rise between these two years?
a. 5.46 percent b. 6.67 percent c. 7.14 percent d. 0.07 percent
Which of the following is FALSE about public-sector decision making?
A. The price charged to consumers is often less than its full opportunity cost. B. Decisions are based on majority rule. C. Incentives play a role in decision making. D. Decisions involve no opportunity cost.