Suppose that in the first period,a woman works,earns income Y,and saves S of the income.In the second (and last)period,the woman consumes her savings plus whatever interest it earned (r is the interest rate).Suppose that the government taxes interest income at a rate of t.As a result of the tax:

Question

Quizplus · Accepted Answer

Since the government taxes interest income at a rate of t, the effective interest rate earned by the woman is (1-t)r. This means that the woman's savings will earn a lower interest rate than before. In order to maintain the same level of consumption in the second period, the woman must save more in the first period to make up for the lower interest earnings. Therefore, option A is the correct answer as the woman must save more in the first period to maintain a given level of consumption in the second period.

Suppose That in the First Period,a Woman Works,earns Income Y,and