A Decrease in the Tax Rate Is More Likely to Increase

question 2

Multiple Choice

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

• A)small and an increase in private saving tends to have a small impact on the capital stock.
• B)small and an increase in private saving tends to have a large impact on the capital stock.
• C)large and an increase in private saving tends to have a small impact on the capital stock.
• D)large and an increase in private saving tends to have a large impact on the capital stock.

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Definitions:

Interest

The charge for the privilege of borrowing money, typically expressed as an annual percentage rate.

Social Mores

Strict norms that control moral and ethical behavior in a culture.

Uniformly

In a consistent or identical manner across a given set of conditions or cases.

Significant

Having a particular meaning, importance, or consequence, often in a specific context.