Suppose a country has a consumption tax that is similar to a state sales tax.If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings,what happens?

Question

Quizplus · Accepted Answer

When the consumption tax is eliminated and replaced with an income tax on interest from savings, the cost of borrowing decreases, which leads to an increase in demand for loans and a decrease in the interest rate. With a decrease in the interest rate, saving decreases as it is less attractive to save. Therefore, the correct choice is C.

Suppose a Country Has a Consumption Tax That Is Similar