A year ago a country reduced the tax rate on all interest income from 20% to 10%. During the year private saving was $500 billion as compared to $400 billion the year before the tax reform. Taxes on interest income fell by $10 billion. Assuming no other changes in income, or government revenues or spending, which of the following is correct?
a. the substitution effect was larger than the income effect; national saving rose
b. the substitution effect was larger than the income effect; national saving fell
c. the income effect was larger than the substitution effect; national saving rose
d. the income effect was larger than the substitution effect; national saving fell
a
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Two factors that have contributed to an increase in income inequality are
A) outsourcing of jobs and tax increases. B) economic growth and low inflation. C) technological change and globalization. D) low interest rates and a strong U.S. dollar.
Moving downward along a linear (straight-line) downward sloping demand curve, the
A) slope is constant. B) price is constant. C) quantity is constant. D) elasticity is constant. E) None of the above answers is correct.
Who can determine the true cost of water?
A) Nobody B) Anybody who puts their mind to it C) Only the most competent hydrologist D) A good accountant
Assume that you are the new CEO of a major corporation that has five major product lines each run as separate corporations
You discover that if you invested the company's money outside of the firm that it could earn a 15% rate of return on the investment. You tell all the presidents of each of these subsidiary companies that in order for them to remain with the company that their return on capital must equal to or exceed 15% rate of return. Use two economic principles discussed in chapter 1 to explain why the CEO's advice is sound.