What Effects Does a Higher Rate of Return Have on Saving

question 7

Multiple Choice

What effects does a higher rate of return have on saving?

• A) A higher rate of return has an income effect that discourages saving and a substitution effect that encourages saving.
• B) A higher rate of return has an income effect that encourages saving and a substitution effect that discourages saving.
• C) A higher rate of return has income and substitution effects that both decrease saving.
• D) A higher rate of return has income and substitution effects that both increase saving.

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Definitions:

Unreported Income

Earnings not declared to tax authorities, often to evade taxation; part of the informal or shadow economy.

GNP

Gross National Product is the total dollar value of all goods and services produced over a specific time period by the nationals of a country, regardless of where the production takes place.

GDP

Gross Domestic Product; the total value of all goods and services produced over a specific time period within a country.

Per Capita GDP

The average economic output per person, calculated by dividing the Gross Domestic Product (GDP) of a country by its total population.