Suppose a Country Has a Consumption Tax That Is Similar

question 90

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, what would most likely happen?

• A) Both the interest rate and saving would decrease.
• B) The interest rate would decrease, and saving would increase.
• C) The interest rate would increase, and saving would decrease.
• D) Both the interest rate and saving would increase.

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Definitions:

Purposeful

Refers to actions undertaken with a specific goal or intention in mind.

Spontaneous

Occurring without external cause or premeditation, often resulting from a natural inclination or impulse.

Economic Generalization

Broad statements or principles about economic behavior that apply to different contexts and situations.

Principle

A fundamental truth or proposition that serves as the foundation for a system of belief or behavior or for a chain of reasoning.