Suppose an Individual Retirement Account (IRA)has a contribution limit of $3,000 per year and that prior to the passage of the law establishing IRAs,Carlos was saving $2,500 per year.After the IRAs were established,Carlos saved $2,000 per year.Which statement is TRUE?

Question

Quizplus · Accepted Answer

Since Carlos was already saving $2,500 before the IRA was established, the tax subsidy had an inframarginal effect on his saving, meaning it did not directly influence his decision to save. Instead, the IRA likely provided further encouragement and convenience for him to continue saving at a slightly reduced rate of $2,000 per year. This is consistent with the fact that his savings did not decrease significantly after the IRAs were established.

Suppose an Individual Retirement Account (IRA)has a Contribution Limit of $3,000