Tax-deductible and interest rate, Macroeconomics

Suppose that Lilistan has two types of citizens: low-income citizens (income = $20,000) and high-income citizens (income = $80,000). Interest income is currently taxed and each type of citizen saves 10% of his or her income for retirement. The government is proposing to allow citizens to put money into an Individual Retirement Account where the contributions would be tax-deductible and interest would accumulate tax-free. Withdrawals would then be taxed as income. The government currently wants to set a $5,000 annual limit on the accounts. Discuss the effect of this policy on the saving choices of both the low-income and high-income citizens in terms of both income and substitution effects as well as the overall effect. 

Posted Date: 3/14/2013 1:24:51 AM | Location : United States

Related Discussions:- Tax-deductible and interest rate, Assignment Help, Ask Question on Tax-deductible and interest rate, Get Answer, Expert's Help, Tax-deductible and interest rate Discussions

Write discussion on Tax-deductible and interest rate
Your posts are moderated
Related Questions
Illustrate an example of Consumer Price Index For instance, if we spend twice as much on apples as on pears, apples would have twice the weight in basket. The precise details o

Expenditures and the Effects of Fiscal Policy are stated as follows: Having finished the discussion on the tax policy and taxation, now let’s us focus on expenditures and the e

According to Keynes, the economy could become stuck at a low income level if: A. aggregate demand and aggregate supply are independent of one another. B. declines in aggregate dema

has determined that the price elasticity of demand for two customer segments (Coach and Business Class) is -1.35 and -2.50. Based on their expectations of profitability, Kashian r

Q. Overall effect of a change in real wages? The supply of labor The supply of labour L S is assumed to be positively related to the real wage W/P

The structural deficit: A. falls as the economy expands and rises when it contracts. B. changes as actual income changes regardless of potential income. C. does not change when inc

What are the two main costs of economic growth The two main costs of economic growth are resource depletion and environmental damage. Economic activity needs factor inp

take one set ( lk& output) to prove

The AS curve Say that nominal wage in year 1 (at a particular point in time) is equal to 1000. On the horizontal part of response curve, real wage is constant and equal to its

Consider the utility function u(x1, x2) = x1x2. (a) Graph the indifference curves for utility levels 1 and 2. (They are symmetric hyperbolas Asymptotic to both axes). (b) Graph the