An Increase in the Tax Rate on Interest Income

Multiple Choice

An increase in the tax rate on interest income

A) raises the amount earned on savings.Saving will rise if the income effect of the increase in the tax rate is larger than the substitution effect.
B) raises the amount earned on savings.Saving will rise if the income effect of the increase in the tax rate is smaller than the substitution effect.
C) reduces the amount earned on savings.Saving will fall if the income effect of the increase in the tax rate is larger than the substitution effect.
D) reduces the amount earned on savings.Saving will fall if the income effect of the increase in the tax rate is smaller than the substitution effect.