In 2010, the co-chairmen of President Obama's deficit reduction commission proposed curtailing or eliminating the mortgage interest deduction that millions of homeowner taxpayers receive every year. Economists who favor the proposal would argue that
(i)too much of the economy's capital stock is tied up in residential housing.
(ii)too little of the economy's capital stock is invested in corporate capital.
(iii)the misallocation of resources results in lower productivity and reduced real wages.

Question

Quizplus · Accepted Answer

Economists who favor the proposal would argue that the mortgage interest deduction leads to an overinvestment in residential housing (i), which means less capital is available for corporate investment (ii), and this misallocation can lead to lower productivity and reduced real wages (iii).

In 2010, the Co-Chairmen of President Obama's Deficit Reduction Commission