Suppose an IRA has a contribution limit of $4,000 per year and prior to the passage of the law that established the IRAs Rachel was saving $5,500 per year. Which of these is the MOST likely effect of the law on her total amount saved?
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a
She saves more through the income effect of the subsidy. The subsidy has a marginal effect on her saving.
b
The tax subsidy has an inframarginal effect on Rachel's saving; that is, she shifts her existing saving to the IRA.
c
She saves less through the substitution effect of the tax subsidy.
d
The tax subsidy has no effect on Rachel's saving behavior.