Question

If the government passes a tax break for its citizens, which of the following is correct?

National savings will remain the same if the public saves the entire tax break

National savings will fall even if the public saves the entire tax break

National savings is not impacted by tax breaks, regardless of public behavior

None of the above are correct

Answer 1

• Option a is the answer.
• National savings will remain the same if the public saves the entire tax break .
• National saving is the sum of public savings and private savings. Public savings are obtained mostly from taxes from the citizens. When there is a tax break, the income of people will increase and this will result in higher consumption and national income will reduce. Since it has been said that, public will save the entire tax break, then the national savings will remain the same.