Which of the Following Might Explain a Decrease in National

question 42

Multiple Choice

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

• A)its substitution effect on saving and its effect on the government budget
• B)its substitution effect on saving but not its effect on the government budget
• C)its effect on the government budget but not its substitution effect on saving
• D)neither its substitution effect on saving nor its effect on the government budget

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Definitions:

Rational Expectations

A theory in economics that suggests individuals make predictions about the future based on all available information, incorporating their understanding of economic policies and trends.

Monetary Policy

Actions of a central bank, currency board, or other regulatory committees that determine the size and rate of growth of the money supply, which in turn affects interest rates.

Fiscal Policy

Refers to government actions regarding taxation and spending aimed at influencing a country's economy.

Monetary Growth Rate

The rate at which the amount of money in circulation increases over a specific period.