Asked by Bui Cam Tu _ K14 FUG CT on May 05, 2024
Verified
According to the permanent income hypothesis,the tax rebate given in 2008 will have the following effect on consumer spending:
A) Consumers will spend all of the money immediately.
B) Consumers will save all of the money immediately.
C) Consumers will spend a small amount and save most to increase their standard of living.
D) Consumers will use money to buy durable goods.
Tax Rebate
A refund on taxes when the tax liability is less than the taxes paid.
Consumer Spending
The total amount of money spent by households in an economy on goods and services, excluding purchases of new housing.
Durable Goods
Products or goods that are intended to last and are characterized by their long usage or service life, such as appliances, cars, and furniture.
- Understand the influence of consumer confidence and anticipations on spending habits.
Verified Answer
TJ
Thushini JayasingheMay 09, 2024
Final Answer :
C
Explanation :
The permanent income hypothesis suggests that people base their spending on the average of their lifetime income instead of their current income. Therefore, a tax rebate will not cause consumers to increase their spending in the short term as their permanent income has not changed. Instead, consumers may choose to save the rebate to increase their standard of living in the long term. This is consistent with choice C, where consumers spend a small amount and save most to achieve a higher standard of living.
Learning Objectives
- Understand the influence of consumer confidence and anticipations on spending habits.
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