Given a real interest rate,a decrease in taxes on saving ________ the after-tax real interest rate and ________ the incentive to save.
A) increases; increases
B) increases; reduces
C) decreases; increases
D) decreases; reduces

Question

Quizplus · Accepted Answer

A decrease in taxes on saving would increase the after-tax real interest rate because the tax burden on savings would reduce. Therefore, the return gained from saving would be higher, and this would increase the incentive to save.

Given a Real Interest Rate,a Decrease in Taxes on Saving