Which of the Following Two Effects of a Decrease in the Tax

question 87

Multiple Choice

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

• A)The income effect and the substitution effect
• B)The income effect but not the substitution effect
• C)The substitution effect but not the income effect
• D)Neither the substitution effect nor the income effect

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Definitions:

Analyze Transactions

The process of examining financial transactions to understand their nature, how they affect the accounts, and how they should be recorded in the accounting system.

Correcting Entries

Journal entries made to amend previously recorded transactions or entries that were made incorrectly.

Balance Sheet Account

A financial statement line item that represents the assets, liabilities, and shareholders' equity at a specific point in time.

Income Statement Account

An account found on the income statement that records business transactions affecting the company's revenue, expenses, gains, and losses.