In an article in the Washington Post, economist Michael Strain of the American Enterprise Institute is quoted
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In an article in the Washington Post, economist Michael Strain of the American Enterprise Institute is quoted as saying, “That’s one of the things about taxes—they change behavior. If you tax savings, you’ll get less savings. That will hurt investment, which will hurt productivity. And that will hurt wages.”
a. Use a graph of the loanable funds market to illustrate why a tax that reduces savings will cause a decline in investment.
b. Why will a decline in investment hurt productivity? Why would a decline in productivity hurt wages?
c. Why might a policymaker who accepts Strain’s reasoning still support an increase in taxes on savings?
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ANSWER a Here is the graphical representation b Impact on Productivity and Wages Decline in Investme...View the full answer
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