An inflation-induced increase in the effective tax rate on interest income and capital gains results in
A)a leftward shift of the saving schedule.
B)a rightward shift of the saving schedule.
C)no shift of the saving schedule.
D)a rightward shift of the investment schedule.

Question

Quizplus · Accepted Answer

An inflation-induced increase in the effective tax rate on interest income and capital gains reduces the net return on savings and investments. As a result, people will be less inclined to save and invest at each level of income. This leads to a leftward shift of the saving schedule.

An Inflation-Induced Increase in the Effective Tax Rate on Interest