Assume That the Substitution Effect Is Large Relative to the Income

question 92

Multiple Choice

Assume that the substitution effect is large relative to the income effect. If a tax reform is designed to increase saving, what does it do to the interest rate and spending on capital goods?

• A) It increases the interest rate and decreases spending on capital goods.
• B) It increases the interest rate and increases spending on capital goods.
• C) It decreases the interest rate and increases spending on capital goods.
• D) It decreases the interest rate and decreases spending on capital goods.

---

Definitions:

Dorsal Stream

A pathway in the brain involved in processing spatial location and movements, often referred to as the "where" or "how" pathway.

Visual Information

Data perceived through sight, involving the interpretation of visible signs, symbols, or objects.

Feature Detectors

Neurons in the brain that respond to specific attributes of a stimulus, such as angles, edges, or movement.

Visual Cortex

The part of the cerebral cortex that processes visual information, located in the back of the brain.