Ms. Mahmood is a retired schoolteacher whose pension income is $25,000 per year. She also receives Social Security income of $5,000 per year. Mr. Little is a young man who does not choose to work. He inherited $600,000 from his Aunt Clara, which he invested in a bond fund that provides a 5 percent return, generating $30,000 income per year. If we are concerned about the equity of taxation, should we consider these two people as equals and tax them equally? Explain why or why not.
What will be an ideal response?
The incomes are not derived from the same types of sources. Horizontal equity would say that
since incomes are the same, they should be taxed the same. In the United States, income
derived from capital gains is not taxed like other sources of income. This issue is related to the
ability to pay principle, as discussed in the textbook.
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When money is accepted as payment for a good or service, it is being used as a
A) medium of exchange. B) mechanism for transforming current purchases into future purchases. C) store of value. D) unit of account.
"When a company's depreciation is larger than its gross investment, net investment becomes negative and the firm's capital stock decreases." Is the previous statement correct or incorrect? Explain your answer
What will be an ideal response?
A good that has external benefits associated with its production will be
A) produced at the optimal level. B) underproduced. C) overproduced. D) not produced.
The production possibilities frontier illustrates
a. the combinations of goods that could be produced with resources and technology constant b. how technology influences opportunity costs c. the law of diminishing returns d. how price changes affect decision making of individuals e. the law of demand