Why don't we divide the economic pie evenly so that each person receives the same income?
This question addresses the role of incentives. If people generally prefer leisure to work, not many will be willing, without reward, to engage in productive activities. Thus, if the link between work effort and reward is weakened, individuals have less incentive to work effectively to create income.
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In the United States the degree of individual income mobility (that is, the degree to which people move from higher to lower or lower to higher income groupings) is
a. rigid in both directions. b. flexible in both directions. c. flexible upward but rigid downward since high income perpetuates itself from generation to generation. d. flexible downward but rigid upward since most low-income people never rise significantly above the poverty level.
Given an annual interest rate of 4 percent, what is the present value of receiving $5,000 in 2 years?
A) $4,585.45 B) $4,622.78 C) $4,535.25 D) $4,619.23