Using cross-sectional data from the two Housing Assistance Supply Experiment (HASE) sites-Brown County, Wisconsin, and St. Joseph County, Indiana, John Mulford of Rand Research estimates that the long-run "permanent" income elasticity of housing expenditures to be 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 will increase significantly.
B) Housing expenditures in HASE sites significantly will fall as recipients moved out of these areas to higher-income areas.
C) Housing expenditures will increase, but not significantly.
D) Housing expenditures will decrease by a small amount.

Question

Quizplus · Accepted Answer

According to the given information, the long-run "permanent" income elasticity of housing expenditures is 0.45. This means that for every 1% increase in income, housing expenditures will increase by 0.45%. Therefore, if the government increases income transfers to HASE recipients, it is likely that their housing expenditures will increase, but not significantly.

Using Cross-Sectional Data from the Two Housing Assistance Supply Experiment