If a reduction in taxes on savings reduced the amount of private saving,then the
A)income effect equaled the substitution effect.
B)income effect outweighed the substitution effect.
C)the substitution effect outweighed the income effect.
D)None of the above.

Question

Quizplus · Accepted Answer

A reduction in taxes on savings increases disposable income, which can lead to more consumption (income effect) rather than saving, outweighing the substitution effect that encourages saving due to higher after-tax returns.

If a Reduction in Taxes on Savings Reduced the Amount