Which of the Following Two Effects of a Decrease in the Tax

question 17

Multiple Choice

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

• A)the income effect and the substitution effect
• B)the income effect but not the substitution effect
• C)the substitution effect but not the income effect
• D)neither the substitution effect nor the income effect

---

Definitions:

Journal Entry

The recording of financial transactions into accounting records, or journals, indicating accounts affected, amounts, and the date.

Special Purpose Machine

A special purpose machine is designed to perform a specific manufacturing or production task and is not versatile for other uses.

Installation Cost

Expenses associated with setting up or installing an asset for use, often capitalized and amortized over the asset's useful life.

Purchase Cost

Purchase cost includes all the expenses that a company incurs to acquire goods or services, including price, taxes, shipping, and handling fees.