Tax-deductible and interest rate, Macroeconomics

Assignment Help:

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. 


Related Discussions:- Tax-deductible and interest rate

Find out fixed cost and average cost, Sara runs a small business assembling...

Sara runs a small business assembling personal computers. This table shows her total cost at different levels of output. Number of computers produced

Rapid growth of the national debt, He rapid growth of the national debt ala...

He rapid growth of the national debt alarmed some politicians and created pressure for restricting Congress's unlimited ability to spend. Efforts to Reduce the Deficit, discuss the

Describe about consumption function, Q. Describe about consumption function...

Q. Describe about consumption function? The consumption function Consumption C(r) is assumed to be negatively related to the real interest rate r

Demand analysis, how the demand of pizzas in pizza hut affecting the market...

how the demand of pizzas in pizza hut affecting the market of fast food

Determine about the expected inflation, Determine about the Expected inflat...

Determine about the Expected inflation Note that it is changes in prices during 2008 which matter for the high real interest rate (the time period when your deposit is earning

Inflation, Social and Political Effects of Inflation in India and Other Cou...

Social and Political Effects of Inflation in India and Other Countries

Explain about the economies and diseconomies of scale, Explain about the ec...

Explain about the economies and diseconomies of scale. Economies and Diseconomies of Scale: a. There are economies of scale while long-run average total cost refuses as outp

Help, Examine the graph below. The mayor has placed a $2 tax on the sale of...

Examine the graph below. The mayor has placed a $2 tax on the sale of each taco sold within the city. How large is the decrease in producer surplus?

How much money can banks create, Q. How much money can banks create? Do...

Q. How much money can banks create? Does that mean that banks can create an unlimited amount of money? No the answer is no - it would require them to lend an unlimited amount o

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd