Q. People will invest in education whenever they are granted the economic freedom to fully enjoy 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 of the higher income that they gain from incremental level of education, it makes 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.
Q1. With reference to the above passage, the following assumptions have been made:
1. Lower tax rates in a country invariably translate into greater investments in higher education.
2. Investment in the education of children ensures their economic freedom.
3. Economic freedom has a positive impact on building up human capital.
Which of the above assumptions is/are valid?
(a) 1 only
(b) 2 only
(c) 3 only
(d) 1, 2 and 3
Correct Answer: (c) 3 only
Question from UPSC Prelims 2020 CSAT Paper
Explanation :
Based on the passage, the following assumptions have been made:
Lower tax rates in a country invariably translate into greater investments in higher education. (Invalid)
The passage suggests that lower tax rates can provide an incentive for individuals to invest in education as they are allowed to retain a higher income that they gain from incremental levels of education. However, it does not suggest that lower tax rates invariably translate into greater investments in higher education. There may be other factors that affect investment in education.
Investment in the education of children ensures their economic freedom. (Invalid)
The passage does not suggest that investment in the education of children ensures their economic freedom. However, it suggests that investment in education can increase the return on education as the level of economic freedom rises.
Economic freedom has a positive impact on building up human capital. (Valid)
The passage suggests that economic freedom can have a positive impact on building up human capital, as people are more likely to invest in education when they are granted economic freedom to fully enjoy its benefits. This implies that economic freedom can help individuals build up their human capital by investing in education.
Therefore, the correct option is (c) 3 only. The passage implies that economic freedom has a positive impact on building up human capital, but it does not suggest that lower tax rates invariably translate into greater investments in higher education or that investment in the education of children ensures their economic freedom.
