Question

Suppose the tax rate on interest income from saving were reduced. a. The income effect, but not the substitution effect, would tend to reduce private saving. b. The substitution effect, but not the income effect, would tend to reduce private saving. c. Both the income and substitution effect would tend to reduce private saving. d. Neither the income nor the substitution effect would tend to reduce private saving.

Answer 1

When the tax rate on income from savings is reduced, the following would take place.

c. Both the income and substitution effect would tend to reduce private saving.

Step-by-step explanation: