Saved Help Problem 1-50 (LO 1-3, LO 1-5) (Algo) Merrick earns $130,000 taxable income as an landscape designer and is taxed at an average rate of 20 percent (e. $26,000 of tax). Answer the questions below assuming that Congress increases the income tax rate such that Merrick's average tax rate Increases from 20 percent to 25 percent. a. What will happen to the government's tax revenues if Merrick chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $97.500 in taxable income? O Government's tax revenues would decrease by $1,625 O Government's tax revenues would increase by $1,625 O Government's tax revenues would decrease by $1,875 O Government's tax revenues would increase by $1,875 O Government's tax revenues would remain unchanged b. What is the term that describes this type of reaction to a tax rate increase? O Income effect Substitution effect O Price effect Budget constraint Endowment effect