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Quiz 548
Quiz 548
48 Questions
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Quiz 548
4. 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).
10. 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.
17. Which of the following are currently provisions of the U.S. tax system and discourage
saving?
a. some forms of capital income are taxed twice
b. if they are large enough, bequests are taxed
c. both a and b
d. neither a nor b
20. Of means tested programs and IRA’s, which lower the rate of return on saving?
a. Both means-tested programs and IRA's.
b. Means-tested programs, but not IRA's.
c. IRA's but not means-tested programs.
d. Neither means-tested program, or IRA's.
24. Which of the following is true concerning IRA’s, 401(k) and 403(b) plans?
a. There are no limits on the amount of funds people can hold in them.
b. Some people are not eligible to hold them.
c. There are never penalties for withdrawals.
d. All of the above are correct.
25. Which of the following is true concerning IRA’s, 401(k) and 403(b) plans?
a. Not everyone is eligible to put funds into them.
b. There are restrictions on the amount of funds that can be put into them.
c. Except under unusual circumstances, there are penalties for withdrawals before retirement.
d. All of the above are correct.
26. Which of the following two effects of a decrease in the tax rate on saving would raise
savings?
a. the income effect and the substitution effect
b. the income effect but not the substitution effect
c. the substitution effect but not the income effect
d. neither the substitution effect nor the income effect
27. A higher rate of return on saving has
a. an income effect that discourages saving and a substitution effect that encourages saving.
b. an income effect that encourages saving and a substitution effect that discourages saving.
c. income and substitution effects that both decrease saving.
d. income and substitution effects that both increase saving.
28. Suppose the tax rate on interest income from saving were reduced.
a. The income effect, but not the substitution effect, would tend to reduce private saving.
b. The substitution effect, but not the income effect, would tend to reduce private saving.
c. Both the income and substitution effect would tend to reduce private saving.
d. Neither the income nor the substitution effect would tend to reduce private saving.
29. If a reduction in taxes on savings reduced the amount of private saving, then the
a. income effect equaled the substitution effect.
b. income effect outweighed the substitution effect.
c. the substitution effect outweighed the income effect.
d. None of the above.
30. Suppose tax laws were reformed to encourage saving by increasing the rate of return on
savings. Which of the following would be true?
a. Both the income effect and the substitution effect would tend to increase the amount of money
a household saved.
b. The income effect would tend to increase household savings while the substitution effect
would tend to decrease household savings.
c. The income effect would tend to decrease household savings while the substitution effect
would tend to increase household savings.
d. Both the income effect and the substitution effect would tend to decrease the amount of money
a household saved.
31. Which of the following might explain a decrease in national saving when the tax rate on
savings is reduced?
a. its substitution effect on saving and its effect on the government budget
b. its substitution effect on saving but not its effect on the government budget
c. its effect on the government budget but not its substitution effect on saving
d. neither its substitution effect on saving nor its effect on the government budget
34. A year ago a country reduced the tax rate on all interest income from 20% to 10%. During
the year private saving was $500 billion as compared to $400 billion the year before the tax
reform. Taxes on interest income fell by $10 billion. Assuming no other changes in income, or
government revenues or spending, which of the following is correct?
a. the substitution effect was larger than the income effect; national saving rose
b. the substitution effect was larger than the income effect; national saving fell
c. the income effect was larger than the substitution effect; national saving rose
d. the income effect was larger than the substitution effect; national saving fell
35. A year ago a country reduced the tax rate on all interest income from 40% to 10%. During
the year private saving was $600 billion as compared to $500 billion the year before the tax
reform. Taxes collected on interest income fell by $150 billion. Assuming no other changes in
government revenues or spending which of the following is correct?
a. the substitution effect was larger than the income effect; national saving rose
b. the substitution effect was larger than the income effect; national saving fell
c. the income effect was larger than the substitution effect; national saving rose
d. the income effect was larger than the substitution effect; national saving fell
37. Assuming that the substitution effect is large relative to the income effect, tax reform
designed to increase saving
a. increases the interest rate and decreases spending on capital goods.
b. increases the interest rate and increases spending on capital goods.
c. decreases the interest rate and increases spending on capital goods.
d. decreases the interest rate and decreases spending on capital goods.
38. A decrease in the tax rate is more likely to increase the standard of living if the income effect
of a change in the interest rate is
a. small and an increase in private saving tends to have a small impact on the capital stock.
b. small and an increase in private saving tends to have a large impact on the capital stock.
c. large and an increase in private saving tends to have a small impact on the capital stock.
d. large and an increase in private saving tends to have a large impact on the capital stock.
39. Which of the following is not an argument by those who oppose tax-law changes to
encourage saving?
a. Saving is not very responsive to changes in the tax rate.
b. Saving is not an important determinant of a nation's ability to produce output.
c. Reducing the budget deficit instead of changing the tax laws could raise saving.
d. Changes in the tax laws to induce saving would distribute the tax burden less fairly.
43. Which of the following is not an argument in favor of reforming the tax laws to encourage
saving?
a. Saving is a key determinant of long-run prosperity.
b. Current tax laws discourage saving for the purpose of leaving a large bequest.
c. The substitution effect of a higher return to saving may be about equal to the income effect of
a higher return to saving.
d. The tax code currently taxes some forms of capital income twice.
44. Which of the following is not an argument made by those who oppose reforming the tax laws
to encourage saving?
a. A public budget surplus can raise national saving.
b. The substitution effect of a higher return to saving may be about equal to the income effect of
a higher return to saving.
c. Low-income households save a larger fraction of their income than high-income households.
d. Tax cuts might cause a budget deficit.
45. Changes in tax laws that reduce taxes more for those who save a lot will
a. favor low-income households.
b. favor people with high income.
c. create a more egalitarian society.
d. unambiguously increase national saving.
46. Opponents of tax reforms intended to raise saving argue that such reforms
a. favor those with high income, and that saving may not rise because of the substitution effect.
b. favor those with high income, and that saving may not rise because of the income effect.
c. favor those with low income, and that saving may not rise because of the substitution effect.
d. favor those with low income, and that saving may not rise because of the income effect.
47. 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.