12. Suppose that the govemment starts taxing interest on savings. The substituti
ID: 1124937 • Letter: 1
Question
12. Suppose that the govemment starts taxing interest on savings. The substitution the income effect effect A. induces the person to save more; induces the person to save more B. induces the person to save more; induces the person to save less C. induces the person to save less; induces the person to save more D. does not affect savings; does not affect savings 13. What is a tax-preferred retirement savings vehicle offered by employers to which the employers often match part or all of employees' contributions? A. defined contribution pension plan B. defined benefit pension plan C. Social Security D. 401(k) account 14. Which statement regarding tax-subsidized saving for retirement is TRUE? A. Tax subsidies for saving unambiguously increase saving. B. The income effect of tax subsidies for saving induces individuals to save more. C. The substitution effect of tax subsidies for saving induces individuals to save less. D. The income effect of tax subsidies for saving induces individuals to save less. 15. Suppose an Individual Retirement Account (IRA) has a contribution limit of $3,000 per year and that prior to the passage of the law establishing IRAs, Carlos was saving $2,500 per year. After the IRAs were established, Carlos saved S2,000 per year. Which statement is TRUE? A. The substitution effect exceeded the income effect. B. The income effect exceeded the substitution effect. C. The income and substitution effects cancelled each other out. D. More information is necessary to determine which effect dominated.Explanation / Answer
Ans 12 The answer of this question would be option c i.e induces the person to save less, induce the person to save more.
Ans 13 The answer of this question would be option b i.e. defined benefit pension plan.
Ans 14 The answer of this question would be option b i.e. The substitution effect of tax subisides for saving induces individuals to save more.
Ans 15 The answer of this question would be option a i.e The substitution effect exceeded the income effect.
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