Assuming that charitable giving is a normal good, the income effect of a decrease in personal tax rates would lead to
A) less giving because giving to charity would become more expensive relative to other goods.
B) more giving because giving to charity would become less expensive relative to other goods.
C) more giving because households would have more disposable income.
D) less giving because households would spend that money on luxury goods.

Question

Quizplus · Accepted Answer

When personal tax rates decrease, individuals have more disposable income. Charitable giving, being a normal good, means that as income increases, the quantity demanded of charitable giving also increases. Therefore, with more disposable income, people are likely to give more to charity.

Assuming That Charitable Giving Is a Normal Good, the Income