A Reduction in the Tax Rate on Income from Saving

question 108

Multiple Choice

A reduction in the tax rate on income from saving would do which of the following?

• A) It would most directly benefit the poor in the short run.
• B) It would increase labour productivity over time.
• C) It would decrease the capital stock over time.
• D) It would decrease real wages over time.

---

Definitions:

Substitution Effect

The transformation in purchasing decisions resulting from changes in the relative pricing of goods, compelling consumers to replace one good with another.

Hourly Wage

The amount of money paid to an employee for each hour of work performed.

Markets for Goods

Platforms or venues where goods and services are exchanged between buyers and sellers, determining the prices through the laws of supply and demand.

Households

Units consisting of one or more people living in the same dwelling and sharing meals or living accommodation; they can also be considered as basic units in society for consumption, production, and decision-making.