Why do permanent tax cuts have a greater impact on consumption than temporary tax cuts?
A)Permanent tax cuts have a greater effect on expected long-run inflation.
B)Permanent tax cuts are perceived as minor while temporary tax cuts are larger and more effective.
C)Permanent tax cuts cause movement along the consumption function, while temporary tax cuts shift the consumption function.
D)Permanent tax cuts affect expectations of long-run income more than temporary tax cuts.

Question

Quizplus · Accepted Answer

Permanent tax cuts are more likely to affect individuals' expectations of their long-term income, leading them to adjust their consumption habits more significantly than they would in response to temporary tax cuts, which are seen as short-term boosts.

Why Do Permanent Tax Cuts Have a Greater Impact on Consumption