Using cross -sectional data from the two Housing Assistance Supply Experiment (HASE) sites in the U.S., John Mulford of Rand Research, estimates that the long -run "permanent" income elasticity of housing expenditures is 0.45 for owners. Using this information, what is likely to happen to housing expenditures if the government increases income transfers to recipients in HASE sites?
A) Housing expenditures in HASE sites will fall significantly as recipients move out of these areas to higher -income areas.
B) Housing expenditures will increase significantly.
C) Housing expenditures will increase, but not significantly.
D) Housing expenditures will decrease by a small amount.

Question

Quizplus · Accepted Answer

Given the income elasticity of housing expenditures is 0.45, this means that a 1% increase in income would lead to a 0.45% increase in housing expenditures. This indicates a positive but less than proportional response, suggesting that housing expenditures will increase but not significantly.

Using Cross -Sectional Data from the Two Housing Assistance Supply