Discuss why saving and investing entails risk. What is the reward for bearing risk? Explain how income taxes affect the returns to risk bearing and its impact on overall risk taking and innovation
What will be an ideal response?
Saving and investing entails risk because individuals are bearing the burden of the possibility that investments might not pay out or that inflation might erode the value of savings. The reward for bearing risk is above-normal profits. The higher the risk, the higher the potential for above-normal profits. Income taxes reduce the return on bearing risk. On the other side, however, government does not subsidize losses from risk taking. Thus, income taxes create a bias against risk taking and innovation.
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Suppose the market clearing price for apples falls from $3.00 to $2.00 per pound, and the overall market clearing output decreases from 1 million to 1/2 million pounds. How can we explain the fall in price and fall in market output?
A) Supply decreased and demand remained unchanged. B) Supply remained unchanged and demand decreased. C) Demand increased and supply remained unchanged. D) Demand remained unchanged and supply increased.
Commodity money is paper currency that may be redeemed for a specific commodity at a specified rate on the currency.
a. true b. false