People will invest in education whenever they are granted the economic freedom
People will invest in education whenever they are granted the economic freedom to fully enjoy its benefits. Again, this is for the obvious reason that the return on education increases as the level of economic freedom rises.
When people, thanks to lower tax rates, are allowed to retain most of the higher income that they gain from each incremental level of education, it makes eminent sense to invest in education. On the other hand, when the government decides to tax the higher income of educated individuals at even higher rates, it makes very little sense to invest in educating oneself further. The same incentives apply to parents who decide on whether to invest in their children’s education.
Which references to the above passage, the following assumptions have been made:
- Lower tax rates in a country invariably translate into greater investments in higher education.
- Investment in the education of children ensures their economic freedom.
- Economic freedom has a positive impact on building up human capital.
Which of the above assumptions is/are valid?
- 1 only
- 2 only
- 3 only
- 1, 2 and 3
Answer: C
Explanation
Statement 1 is incorrect since it implies that lower tax rates will always lead to greater investment in higher education. Although, the passage discusses the direct correlation between the two, the use of the word invariably makes it an extreme statement.
Statement 2 is incorrect because it is economic freedom, resulting from lower tax rates, that ensures investment in higher education and not vice versa.
Statement 3 is correct since greater economic freedom makes way for investment in education which is a key component for building human capital. Although Statement 1 may look correct, there is no option for marking Statements 1 and 2 as correct assumptions.
- Exam Year: 2020