Of the following,the most likely effect of an increase in income tax rates would be to
A)decrease the savings rate.
B)decrease the supply of loanable funds.
C)increase interest rates.
D)All of the options.

Question

Quizplus · Accepted Answer

An increase in income tax rates would likely decrease disposable income and thus reduce the ability of households to save. This would lead to a decrease in the savings rate, which in turn reduces the supply of loanable funds. The decrease in the supply of loanable funds would increase the demand for loanable funds, leading to an increase in interest rates. Therefore, all of the options listed are likely effects of an increase in income tax rates.

Of the Following,the Most Likely Effect of an Increase in Income