Suppose Two Individuals Earn the Same Salary Each Year Over

question 36

Multiple Choice

Suppose two individuals earn the same salary each year over their lifetimes.One individual saves 25 percent of his income each year, while the other saves nothing.Over their lifetimes under a comprehensive income tax, the

• A)discounted present value of taxes paid will be the same for both.
• B)discounted present value of taxes paid will be greater for the saver.
• C)discounted present value of taxes paid will be greater for the nonsaver.
• D)saver will pay no tax on his interest income.

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Definitions:

Melting Occurs

The process by which a solid becomes a liquid due to an increase in temperature and/or a decrease in pressure.

Diverging Plates

Tectonic plates that are moving away from each other, often resulting in the formation of new crust as magma rises to fill the gap, seen at mid-ocean ridges and continental rift zones.

Converging Plates

The process where two tectonic plates move toward each other, often leading to mountain building, earthquakes, and volcanism.

Moving Away

The process of an object or entity increasing its distance from another point or object.