Suppose Tax Laws Were Reformed to Encourage Saving by Increasing

question 1

Multiple Choice

Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings.Which of the following would be true?

• A)Both the income effect and the substitution effect would tend to increase the amount of money a household saved.
• B)The income effect would tend to increase household savings while the substitution effect would tend to decrease household savings.
• C)The income effect would tend to decrease household savings while the substitution effect would tend to increase household savings.
• D)Both the income effect and the substitution effect would tend to decrease the amount of money a household saved.

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