Explain the economic idea that "people respond to incentives."
What will be an ideal response?
Human beings act from a variety of motives, including religious belief, envy, and compassion. "People respond to incentives" means that people will act in the way that they feel is in their best interest.
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Consider the following methods of taxing a corporation's income:
a. A flat tax, as opposed to a progressive tax, is levied on corporate profits. b. A system whereby a corporation calculates its annual profit and notifies each shareholder of her portion of the profits. The shareholder would then be required to include this amount as taxable income for her personal income tax. The corporation does not pay a tax. c. A system where the federal government continues to tax corporate income through the corporate income tax but allows individual taxpayers to receive, tax free, corporate dividends and capital gains. Which of the methods above would avoid double taxation? A) a, b, and c B) a and b only C) a and c only D) b and c only
The origins of modern monetarism lie in the work of the
A) Classical economists. B) Keynesians. C) Malthusians. D) Mercantilists.
According to the life-cycle hypothesis, as consumers get older ________
A) the marginal propensity to consume out of wealth and income rise B) the marginal propensity to consume out of wealth falls and the marginal propensity to consume out of income rises C) the marginal propensity to consume out of wealth rises and the marginal propensity to consume out of income falls D) the marginal propensity to consume out of wealth and income fall
According to the Taylor rule, the Fed will set the federal funds rate target based on which of the following?
A) an estimated long-run real interest rate B) the current deviation of the actual inflation rate from the Fed's inflation objective C) the proportionate gap between actual real GDP and a measure of potential real GDP D) all of the above