Yi and Avik Are Both Economists

question 2

Multiple Choice

Yi and Avik are both economists.Yi thinks that taxing consumption,rather than income,would result in higher household saving because income that is saved would not be taxed.Avik does not think that household saving would respond much to a change in the tax laws.In this example,Yi and Avik

• A)hold different normative views about the tax system.
• B)disagree about the validity of a positive theory.
• C)have a fundamental misunderstanding of the tax system.
• D)More than one of the above is correct.

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Definitions:

Savings Rate

is the proportion of disposable income that is saved rather than spent by individuals or households.

Productive Investment Projects

Initiatives undertaken by businesses or individuals that are expected to yield a return by increasing output or efficiency.

Uncertain Returns

The unpredictability associated with the outcome of an investment or the potential return on an investment.

Economic Profit

The difference between a firm’s total revenues and its total costs, including both explicit and implicit costs, reflecting the true profitability of the firm.