Question

A higher tax rate on interest income provides an incentive for private saving, but a higher interest rate provides a disincentive for private saving

Select one:

True

False

People would desire to borrow more if the nominal rate of interest is 6 percent with a corresponding inflation rate of 2 percent than if the nominal rate of interest is 5 percent with a corresponding inflation rate of 3 percent.

Select one:

True

False

Mutual funds are one type of financial intermediary and the advantage of mutual funds is that they allow people with small amounts of money to diversify as well as ??give ordinary people access to the skills of professional money managers

Select one:

True

False

If Congress increased the tax on interest income, saving would decrease, interest rates would rise and investment would decrease.

Select one:

True

False

Answer 1

1. False

Explanation: A higher interest provides and incentive to save and a higher tax rate on interest incomes provides a disincentive to save.

2. False

Explanation: Real interest = nominal interest - rate of inflation. Real interest is lower in the second case and people would borrow more in the second case.

3. True

Explanation: Mutual funds are managed by professionals.

4. True

Explanation: A higher tax on interest incomes discourages savings and lowers the supply of loanable funds.