Suppose a Country Has a Consumption Tax That Is Similar

question 26

Multiple Choice

Suppose a country has a consumption tax that is similar to a provincial sales tax. If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings, which of the following would most likely happen?

• A)There would be no change in the interest rate or saving.
• B)The interest rate would decrease, and saving would increase.
• C)The interest rate would increase, and saving would decrease.
• D)The interest rate would increase, and saving would increase.

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