Question 1

Which of the following raise the incentive for households to save?
A)means-testing of government benefits and inheritance taxes
B)means-testing of government benefits but not inheritance taxes
C)inheritance taxes, but not means-testing of government benefits
D)neither means-testing of government benefits nor inheritance taxes

Accepted Answer

Means-testing of government benefits and inheritance taxes both lower the incentive for households to save, while the absence of these policies does not change or may slightly increase the incentive for households to save. Therefore, the best choice is D, which indicates the absence of both policies.

Question 2

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Accepted Answer

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Question 3

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?
A)The cost of something is what you give up to get it (Principle 2).
B)Trade can make everyone better off (Principle 5).
C)Markets are usually a good way to organize economic activity (Principle 6).
D)A country's standard of living depends on its ability to produce goods and services (Principle 8).

Accepted Answer

The answer of Reforming tax laws to encourage saving is...

Question 4

Higher saving is associated with
A)a larger capital stock and higher productivity.
B)a larger capital stock but not higher productivity.
C)higher productivity but not a higher capital stock.
D)neither a higher capital stock nor higher productivity.

Accepted Answer

Higher saving leads to a larger pool of funds available for investment, which can be used to create a larger capital stock. This, in turn, can lead to higher productivity as firms are able to invest in new technology, machinery, and equipment which can increase their productivity. Hence, higher saving is associated with a larger capital stock and higher productivity.

Question 5

Which of the following reduce the incentive for households to save?
A)both means-testing of government benefits and inheritance taxes
B)means-testing of government benefits but not inheritance taxes
C)inheritance taxes, but not means-testing of government benefits
D)neither means-testing of government benefits nor inheritance taxes

Accepted Answer

Means-testing of government benefits reduces the incentive for households to save, as they may not receive benefits if they have too much saved up. Inheritance taxes also reduce the incentive for households to save, as they may not be able to pass on as much wealth to future generations. Therefore, both means-testing of government benefits and inheritance taxes combined would have a greater impact on reducing the incentive for households to save than either policy alone.

Question 6

Means-tested government benefits base benefits on
A)a household's wealth and are an incentive to save.
B)a household's wealth and are a disincentive to save.
C)the current interest rate and are an incentive to save.
D)the current interest rate and are a disincentive to save.

Accepted Answer

Means-tested government benefits are based on a household's wealth, and as a result can act as a disincentive to save. Individuals may be hesitant to save money or accumulate assets because it could make them ineligible for these benefits, leading to a potential decrease in overall financial security.

Question 7

Accumulated over a long span of time, the tax rate on interest income
A)removes all benefits from saving.
B)reduces the benefits from saving by a small amount.
C)reduces the benefits from saving by a large amount.
D)does nor reduce any of the benefits from saving.

Accepted Answer

The accumulated tax rate on interest income reduces the benefits of saving by a large amount. As interest income is taxed every year, the earnings from savings accrue at a slower pace, thereby reducing the compounding effect of interest. This reduces the overall benefits of saving significantly over a long period of time.

Question 8

Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

Accepted Answer

The answer of Suppose that the government goes into deficit...

Question 9

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The answer of Why do many economists advocate a consumption...

Question 10

Explain how tax provisions to encourage private saving may reduce national saving.

Accepted Answer

The answer of Explain how tax provisions to encourage private...

Question 11

Is it possible that deficits do not burden future generations?

Accepted Answer

The answer of Is it possible that deficits do not...

Question 12

Explain how it is possible for the government debt to grow forever.

Accepted Answer

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Question 13

Means-tested college aid, base college aid primarily on
A)a student's abilities, and create an incentive to save.
B)a student's abilities but create a disincentive to save.
C)the current interest rate and are an incentive to save.
D)the current interest rate and are a disincentive to save.

Accepted Answer

Means-tested college aid base college aid primarily on a student's abilities but create a disincentive to save. This is because the aid is given to students based on financial need, determined by income and assets, which means that having savings could reduce the amount of aid received. Therefore, families may be discouraged from saving for college in order to increase their chances of receiving more aid.

Question 14

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

Accepted Answer

The answer of Means-tested government programs tend to reduce saving....

Question 15

Policies that reduce the incentive for households to save include
A)means-testing.
B)College and university financial aid administration.
C)inheritance taxes.
D)All of the above.

Accepted Answer

Means-testing reduces the incentive to save because it reduces the benefits to those who have saved. College and university financial aid administration reduces the incentive to save because families with higher assets may receive less financial aid. Inheritance taxes reduce the incentive to save because they reduce the amount of wealth that can be transferred to heirs. Therefore, all of the above policies reduce the incentive for households to save.

Question 16

Identify three government policies that discourage saving.

Accepted Answer

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Question 17

A reduction in the tax rate on income from saving would
A)most directly benefit the poor in the short run.
B)increase real wages over time.
C)decrease the capital stock over time.
D)decrease productivity over time.

Accepted Answer

A reduction in the tax rate on income from saving would increase the return on saving, leading to higher levels of saving, investment, and ultimately increased productivity over time. This would lead to an increase in real wages over time. However, in the short run, the benefits may be felt more by the wealthy, who have more access to saving and investment opportunities than the poor.

Question 18

Which of the following is correct?
A)No forms of capital income are taxed twice.
B)The tax code cannot be rewritten to provide greater incentive to save.
C)Means-tested benefits increase the incentive to save.
D)There is a correlation between national savings rates and measures of economic well-being.

Accepted Answer

There is a positive correlation between national savings rates and measures of economic well-being. Countries with high national savings rates tend to have lower inflation rates and more stable economies.

Question 19

The six debates over macroeconomic policy exist mostly because
A)economists disagree over basic issues such as the importance of saving for economic growth.
B)there are tradeoffs and people disagree about the best way to deal with them.
C)politicians offer misleading information.
D)people fail to clearly see the benefits or the costs of most changes.

Accepted Answer

The six debates over macroeconomic policy, including debates over trade-offs between inflation and unemployment, short-term stabilization policies, government deficits and debts, and the role of the government in the economy, exist mostly because there are trade-offs in macroeconomic policy and people have different opinions about the best way to balance them. While economists do have different views on basic issues such as the importance of saving, these debates are specifically related to macroeconomic policy. While politicians may offer misleading information, this is not the primary reason for these debates. People may fail to clearly see the benefits or costs of policy changes, but this is not the only reason why there are debates over macroeconomic policy.

Question 20

Higher saving is associated with
A)a larger capital stock and a higher standard of living.
B)a larger capital stock but not a higher standard of living.
C)a higher standard of living but not a larger capital stock.
D)neither a higher standard of living nor a higher capital stock.

Accepted Answer

When people save more, banks and other financial institutions can lend money to businesses and entrepreneurs, who use the borrowed money to invest in capital goods such as equipment, machinery, and buildings. As the capital stock grows, productivity and output increase, leading to higher wages and a higher standard of living for workers. Therefore, higher saving is associated with a larger capital stock and a higher standard of living.

Quiz 36: Six Debates Over Macroeconomic Policy

Which of the following raise the incentive for households to save?

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Higher saving is associated with

Which of the following reduce the incentive for households to save?

Means-tested government benefits base benefits on

Accumulated over a long span of time, the tax rate on interest income

Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

Why do many economists advocate a consumption tax rather than an income tax?

Explain how tax provisions to encourage private saving may reduce national saving.

Is it possible that deficits do not burden future generations?

Explain how it is possible for the government debt to grow forever.

Means-tested college aid, base college aid primarily on

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

Policies that reduce the incentive for households to save include

Identify three government policies that discourage saving.

A reduction in the tax rate on income from saving would

Which of the following is correct?

The six debates over macroeconomic policy exist mostly because

Higher saving is associated with