in a certain economy, people save some part of their income in the financial sector and use the remaining…

in a certain economy, people save some part of their income in the financial sector and use the remaining part for consumption. the government decides to increase the tax rates for everyone in that economy. what effect will the tax increase have on savings and investment in that economy? a. savings decrease, and investment decreases. b. savings increase, and investment increases. c. savings increase, and investment decreases. d. savings decrease, and investment increases.

in a certain economy, people save some part of their income in the financial sector and use the remaining part for consumption. the government decides to increase the tax rates for everyone in that economy. what effect will the tax increase have on savings and investment in that economy? a. savings decrease, and investment decreases. b. savings increase, and investment increases. c. savings increase, and investment decreases. d. savings decrease, and investment increases.

Answer

Brief Explanations:

When tax rates increase, disposable income (income after - tax) decreases. Since savings are a part of disposable income, with less disposable income, savings will decrease. Investment in an economy is often related to the amount of savings available in the financial system (through the loanable - funds market). Less savings means less funds available for investment, so investment also decreases.

Answer:

A. Savings decrease, and investment decreases.