Asked by Huyen Nguyen on Jun 01, 2024
Verified
Suppose that Family A borrows money when its car breaks down and saves money when the wife receives a holiday bonus from her employer. Suppose that Family B borrows money to buy elaborate birthday presents for the children and spends the husband's holiday bonus on a vacation to Washington. Which of the following is correct?
A) Both Family A's and Family B's spending habits suggest that they base their purchasing decisions on transitory income."
B) Family A's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income.Family B's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income.
C) Family A's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income.Family B's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income.
D) Both Family A's and Family B's spending habits suggest that they base their purchasing decisions on permanent income.
Transitory Income
Income that is temporary or not expected to continue at the same level in future periods, such as one-time bonuses or inheritances.
Permanent Income
A theory suggesting that people's spending choices are better determined by their long-term average income rather than their current income.
Purchasing Decisions
The choice process by consumers or organizations regarding the identification, comparison, and selection of products or services.
- Comprehend the distinction between transitory and permanent income, and its influence on expenditure choices.
Verified Answer
Learning Objectives
- Comprehend the distinction between transitory and permanent income, and its influence on expenditure choices.
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