Assume That the Substitution Effect Is Large Relative to the Income

question 92

Multiple Choice

Assume that the substitution effect is large relative to the income effect. If a tax reform is designed to increase saving, what does it do to the interest rate and spending on capital goods?

• A) It increases the interest rate and decreases spending on capital goods.
• B) It increases the interest rate and increases spending on capital goods.
• C) It decreases the interest rate and increases spending on capital goods.
• D) It decreases the interest rate and decreases spending on capital goods.

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Definitions:

Mahayana Buddhists

Followers of the Mahayana branch of Buddhism, emphasizing the pursuit of enlightenment for the sake of all beings.

Taiwan

An island nation in East Asia, known for its modern cities, traditional Chinese temples, and rugged mountain landscapes.

Cultural Institution

A cultural institution is an organization that preserves, promotes, or presents cultural heritage, arts, or knowledge, such as museums, libraries, and theaters.

Social Institution

An organized structure and mechanism of social order and cooperation governing the behavior of a set of individuals within a given community.