Answer: decrease; increase
Explanation: income tax is tax imposed on income generated or earned by an individual or organization.
Consumption tax essentially taxes people when they spend money.
So if income tax is replaced with consumption tax so that savings is not taxed, then the real interest rate will decrease and the equilibrium quantity of saving and investment will increase as more people are encouraged to save more and spend less knowing that the more they spend, the more taxes they pay and the less they spend the less taxes they pay to the Government.
