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Question from Economics of public revenue 1.The government imposes a 10 percent tax on interest, and...

Question from Economics of public revenue

1.The government imposes a 10 percent tax on interest, and the interest which borrowers pay to the bank can get a tax deduction. How will this policy affect the government 's saving decision? Explain every case that is possible and draw diagrams to explain your answers?

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Answer #1

The governmentd decisions to curb savings and interest onnsavings is adjusted with 10 percent taxes and deduction which propels consumers to save less and spend more or consume more and thus the aggregated demand curve shifts rightwards helping the economic growth to go higher. This also causes inflation to b ehigher as consumptions widen.

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