Suppose a Country Has Only a Sales Tax

question 200

Multiple Choice

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

• A)interest rates and the equilibrium quantity of loanable funds rise.
• B)interest rates rise and the equilibrium quantity of loanable funds fall.
• C)interest rates fall and the equilibrium quantity of loanable funds rise.
• D)interest rates and the equilibrium quantity of loanable funds fall.

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Definitions:

Unconditioned Response

A natural, unlearned reaction to an unconditioned stimulus, such as salivation when food is presented, inherent in classical conditioning.

Unconditioned Stimulus

A stimulus that naturally and automatically triggers a response without needing prior learning.

Spontaneous Recovery

The return of a conditioned response that had vanished, following a pause where the conditioned stimulus was not presented.

Classical Conditioning

The conditioning process of repeatedly associating two stimuli together, such that a reaction first brought about by the second stimulus is later brought about by the first stimulus alone.