Which of the Following Would Be the Effect of Indexing

question 150

Multiple Choice

Which of the following would be the effect of indexing the tax system to take into account the effects of inflation on taxing capital gains?

• A)Only real interest earnings would be taxed.
• B)Taxing capital gains would become irrelevant.
• C)Average tax rates would increase.
• D)Investors would be worse off.

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Definitions:

Risk Aversion

The reluctance to take on investments with higher levels of uncertainty or potential for loss.

Accepting Risk

Accepting risk involves recognizing and undertaking the chance of loss or damage in the expectation of a potential gain.

Systematic Risk

The risk inherent to the entire market or an entire market segment, also known as non-diversifiable risk or market risk.

Diversification

Strategy of spreading investments across various financial assets, industries, or other categories to reduce risk.