A Reduction in the Tax Rate on Interest Income

question 20

Multiple Choice

A reduction in the tax rate on interest income

• A)raises the amount earned on savings. Saving will rise if the income effect of the reduction in the tax rate is larger than the substitution effect.
• B)raises the amount earned on savings. Saving will rise if the income effect of the reduction in the tax rate is smaller than the substitution effect.
• C)reduces the amount earned on savings. Saving will rise if the income effect of the reduction in the tax rate is larger than the substitution effect.
• D)reduces the amount earned on savings. Saving will rise if the income effect of the reduction in the tax rate is smaller than the substitution effect.

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